VDMA forecasts Indian GDP growth in FY 17-18 at 7.2%

VDMA forecasts Indian GDP growth in FY 17-18 at 7.2%

According to the VDMA, which is active in India with support to more than a 100 major German company investments in the country, India’s economy may grow at a slightly slower pace of 7.2% this fiscal year (1 April 2017 to 31 March 2018) amid weaker global demand and risk aversion. VDMA also refers to ‘methodological concerns’ in computation of official GDP data. According to the global financial services majors, some of the factors that are weighing on the economy include weaker global demand, banking sector risk aversion, sluggish domestic private investment, gradually climbing oil prices, and statistical auto-correction in growth data.

All considered, VDMA expects GDP growth to slow gently from 7.6% last year to 7.4% in 2016-17 and further to 7.2% in 2017-18. Despite lower growth, this will be among the best growth performances globally. India’s first quarter GDP growth was 7.9% y-o-y, primarily led by urban consumption demand.

VDMA says the Indian GDP data are fraught with methodological concerns and when it made some adjustments in method, the actual growth was 6 to 6.5%, 150 bps below the official estimate. It is further noted that some of the growth overestimation—around 80 bps—could auto-correct over the next six quarters.

Meanwhile, the factors that are likely to support GDP numbers, going forward, include government wage hike-led urban consumption demand, normal monsoon-driven rural revival and monetary transmission of previous policy rate cuts powered by domestic liquidity.

Germany engineering goods and Brexit
The machine manufacturers in Germany fear negative consequences from withdrawal of Britain from the EU. As per the VDMA, this would worsen the investment climate in Europe as the trade to the UK would be noticeably more difficult for machinery. In the first quarter of this year, exports of machinery from Germany have declined to the United Kingdom by 4% to around €1.7 billion compared to last year. With an export volume of €7.2 billion per year (2015), the UK is the fourth most important market for engineering.

For general engineering, UK is one of the core markets. A withdrawal from the EU would be a great loss for the engineering industry. This would in fact hinder bilateral trade between EU and Britain.

The German engineering industry is particularly dependent on exports, which achieved 77% of its sales abroad (2015). Great Britain is one of the main export markets ranking behind the United States (€16.8 billion), China (€16 billion), France (€9.8 billion) and ahead of Italy (€6.5 billion) and the Netherlands (€1 billion). At the same time in 2015, Germany was the most important machine supplier for the UK ahead of the US and well ahead of China.

– Naresh Khanna, editor@ippgroup.in

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