Citi’s GDP Estimates down to 7.7%

Breaking NewsCiti has revised FY09 GDP Estimates – from 8.3% to 7.7%. out: Earlier this year, when Citi cut our FY09 GDP estimate from 9% to 8.3%, they said that the two key risks to the growth outlook were

  • on the domestic front, an extended pause in policy rates which would further dampen both consumption and investments and
  • global developments taking a further downturn. With both these risks panning out, we are further cutting our GDP estimates from 8.3% to 7.7%.

Continued rise in volatility and risk premium in the financial markets is likely to result in a deceleration in capital flows and financing becoming more costly as spreads are widening. This in turn will have spillover effects to the real sector.

The India story has been largely investment-led rising 15% on a YoY basis with the Investment GDP ratio increasing to 36% of GDP from 25% in FY03. With the increase in risk aversion, low appetite for public offerings coupled with high domestic rates could dampen/delay investment demand.