Demonetisation created uncertainty about short and medium term outlook for economy: Moody’s
MUMBAI: Even as Indian government said that the Indian economy has not been impacted due to demonetisation, a report by Moody’s said that the economic slowdown in India may be here only for a short time and policy action will determine sovereign credit impact.
Demonetization created uncertainty about the short and medium term outlook for the economy. Nearly four months on, latest data support our initial expectation that the disruption would be short term in nature. As liquidity conditions continue to normalize, we expect economic growth to pick up, returning to pre-demonetization rates in the second half of 2017, the Moody’s report stated.
The report states that in November and early December 2016, implementation difficulties and uncertainty surrounding demonetization disrupted economic activity. “Households and businesses experienced material liquidity shortages as cash was removed from the system, curbing both consumption and investment. In late December, liquidity stabilized, and conditions began to improve in January 2017,” it said.
According to Moody’s the Reserve Bank of India (RBI) has yet to release official data on the proportion of the withdrawn currency notes that have been returned into the system.
The report said that the GDP growth may slowdown in January, but would stabilise later on.
“We expect growth to moderate to about 6.4 per cent in the January to March 2017 quarter from 7.0 per cent in the October to December 2016 quarter, before picking up above 7.0 per cent thereafter, as the temporary drag from demonetization fades. At the end of 2016, while demonetization contributed to a modest slowdown from the previous quarter, stronger growth in agriculture and government spending partially offset this. Growth in manufacturing value added was also robust,” the report said.
Demonetization created uncertainty about the short and medium term outlook for the economy. Nearly four months on, latest data support our initial expectation that the disruption would be short term in nature. As liquidity conditions continue to normalize, we expect economic growth to pick up, returning to pre-demonetization rates in the second half of 2017, the Moody’s report stated.
The report states that in November and early December 2016, implementation difficulties and uncertainty surrounding demonetization disrupted economic activity. “Households and businesses experienced material liquidity shortages as cash was removed from the system, curbing both consumption and investment. In late December, liquidity stabilized, and conditions began to improve in January 2017,” it said.
According to Moody’s the Reserve Bank of India (RBI) has yet to release official data on the proportion of the withdrawn currency notes that have been returned into the system.
The report said that the GDP growth may slowdown in January, but would stabilise later on.
“We expect growth to moderate to about 6.4 per cent in the January to March 2017 quarter from 7.0 per cent in the October to December 2016 quarter, before picking up above 7.0 per cent thereafter, as the temporary drag from demonetization fades. At the end of 2016, while demonetization contributed to a modest slowdown from the previous quarter, stronger growth in agriculture and government spending partially offset this. Growth in manufacturing value added was also robust,” the report said.
