Citigroup cuts GDP forecast to 7.2% in 2008

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New Delhi, Oct 14 : Global financial services firm Citigroup has lowered India’s GDP forecast for this calender year to 7.2% from its earlier estimate of 7.5% but asserted that growth in Asian region will not collapse under the pressure of global financial turmoil.

“Expectations of a more severe recession in the US has prompted further cuts to Asian GDP forecasts,” Citigroup said adding that “while growth deceleration is worrisome, growth is likely to be much stronger than during the Asian financial crisis”.

For the year 2009, Citigroup has downgraded India’s GDP forecast to 6.6%, down 0.8 percentage points from its earlier estimate of 7.4%.

Meanwhile, another global financial services firm Goldman Sachs has also lowered India’s growth forecast for FY’09 to 7.5% from the previously estimated 7.8% and expects RBI to cut repo rate by 50 basis points by October 24 and not wait for FY’09, as predicted earlier. Goldman Sachs has also revised its forecast for economic growth for fiscal 2010, bringing it down to 7% from 7.2% estimated earlier. The Citigroup report, titled ‘Asia Macro Views’, said, “Economic and market performance will be divergent across the region. The countries with larger domestic markets and greater policy flexibility, such as China and India, will perform better than the rest.”

Since the Chinese economy is relatively more open, flexibility in both fiscal and monetary policies means that China should be better placed to offset weaknesses in external demand and maintain strong growth. “As the South Asian region, including India, Bangladesh and Sri Lanka, is relatively closed, it is less exposed to the risk of growth slowdown,” the report added. In the backdrop of the US financial turmoil, Citigroup has downgraded Asia’s 2009 GDP growth forecasts by an average of 0.9 percentage points to 6.3%.

“It would be Asia’s lowest growth rate for the past eight years... It’s still pretty decent performance, especially compared with 2.1% in 1998 during the East Asian financial crisis and 4.8% in 2001 when the US experienced one-quarter negative GDP growth,” Citigroup said.