S&P lowers India's GDP growth forecast to 5.5%

 Standard & Poor’s Ratings (S&P) on Monday lowered the country’s GDP growth forecast by 1 per cent, to 5.5 per cent, owing to deficient rainfall and lingering crisis in the Euro zone and weak recovery in the US.

In a statement, S&P said, “The lack of monsoon rains has affected India, for which agriculture still forms a substantial part of the economy.” Additionally, the international rating agency said: “The more cautious investor sentiment globally has seen potential investors become more critical of India’s policy and infrastructure shortcomings.”

It may be noted that the India’s economy grew at a sluggish 5.5 per cent in April-June 2012 period as compared to 8 per cent in the corresponding quarter of previous year, as per the latest official data. In the first quarter of the current fiscal, India’s GDP growth had slumped to a nine-year low of 5.3 per cent.

The only consolation that one can derive from S&P’s action on the GDP growth forecast front was that it was not specific to India alone, other Asia Pacific nations in the region too have faced similar actions, albeit a tad lower.

S&P Credit Analyst Andrew Palmer pointed out that the Hong Kong’s GDP growth forecast has also been lowered by 1 percentage point to 1.8 per cent.
For others, Palmer said, “We have lowered our base case forecasts of 2012 GDP growth by about half a percentage point for China to 7.5 per cent, Japan to 2 per cent, South Korea to 2.5 per cent, Singapore to 2.1 per cent and Taiwan to 1.9 per cent.”

The credit conditions for rated portfolios in Asia Pacific remains mixed. “Naturally, any worsening of the economic conditions in the Euro zone will increase contagion risk for Asia Pacific, given the region’s particularly the open economies sensitivity to capital flows and trade,” Palmer concluded.