Goldman Sachs predicts 8.5% GDP growth in FY22

The Indian economy will grow by 8.5% this financial year and then accelerate to 9.8% in 2022-23, brokerage Goldman Sachs has said. The Reserve Bank of India’s (RBI) forecast is 9.5% growth in 2021-22.

Goldman Sachs expects consumption to be a key growth driver in 2022 as economic activities fully resume, spurred by an accelerated vaccination programme and steady improvement in pandemic situation, the Times of India reported.

The Indian economy had contracted by 7.3% in FY 21, largely due to lockdowns across the country to prevent the spread of Covid-19.

The foreign brokerage expects the government to continue capital spending, while anticipating private sector capital expenditure to rebound. It also sees a resurgence in housing investment.

GDP growth

According to The Times of India report, Goldman Sachs’s is one of the few analyses that see growth accelerating in FY 23 even after the base effect wears off.

British brokerage Barclays has predicted that growth in FY22 will be 10% and the economy will expand at a slower pace of 7.8% in FY23.

The RBI will commence policy normalisation once growth catches up, according to Goldman Sachs, with total rate hikes of 0.75% predicted in 2022. It stated that the central bank is currently in the second step of a four-part policy normalisation process .

According to Barclays, the policy has become less accommodating, and the next policy review in December will result in a hike in the reverse repo rate, which will be followed by rate hikes next year.

Policymakers were focused on controlling growth risks in the previous three years, which underlines that the slump began even before the pandemic and that the focus will now move to financial stability issues.

Inflation will begin to drop in the second half of next year, prompting the RBI to take necessary measures, according to the report.

Goldman Sachs analysts predict that headline consumer price inflation will grow to 5.8% in 2022, up from 5.2% in 2021.