Macro Note:India,Finally Out Of The Woods?Not So Soon

India’s 2Q FY18 GDP reversed the previous 5 quarters of slowdown and expanded 6.3%y/y.

    Support came mainly from the uptick in investments. However, consumption, the largest partof GDP, remains benign. That means that both the demonetization exercise from November2016 and the implementation of GST in July 2017 is slowing down consumer demand.

    Using passenger cars sales as a higher frequency proxy to gauge discretionary consumerdemand, we observe a similar slowdown.

    Although inflation has picked up in the second half of 2017, it is not exhibiting the classiccase of “demand-pulled” inflation as the average Indian consumer is not spending as much.

    Higher prices reflect the GST imposition.

    As such, it will be really too early for the RBI to embark on any rate hikes. In fact, we areexpecting another 25bps rate cut in the 6 December policy meeting.