Recovery in govt spending, pvt investment to remain subdued

Tags: News
A recovery in private investments, consumption and government spending is likely to remain subdued for the next one year, says a report.

"We believe that a meaningful recovery in private capex, government spending or private consumption, will be difficult to achieve over the next 6-12 months while policy makers focus on improving macro stability indicators such as inflation, the current account deficit and improving banking sector balance sheet," Morgan Stanley said in a report today.

Due to constraints that domestic demand is facing, the strength of the overall growth uptick will depend on improvements in exports in the near term and the measures to boost productivity in the medium-term, the report said.

It further said the general election scheduled for May 2014 will be critical in determining the pace of the recovery.

"We believe a strong set of policy reforms which improves productivity will help to kick start the macro adjustment process that will help to lay the foundation for a future boom phase in the growth cycle," the report said.

The report does not expect any major policy actions to be announced over the next 4 months until the new government takes charge. "Following the elections, we believe the new government will have to respond quickly to the deteriorating macro environment."

The report expects CPI inflation to moderate over the next 12 months, however, the pace of moderation will likely be gradual.

"The recent monetary tightening, reduced mis-allocation in the household balance sheet (lower allocation to gold and property), the focus of the corporate sector on improving productivity, demand compression and lower year-on-year of global commodity prices should help moderate CPI inflation to around 7.5-8 per cent by March, 2015," the report said.

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