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Slow and Unsteady

The government’s attempt to re-ignite growth with a fiscal stimulus has failed to enthuse investors. With slowing growth and not much respite in sight, is the worst yet to come?

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Unless you have been hiding under a rock, there is no way you could have missed the incessant chatter around the economic slowdown. Is it structural or a blip before things get back on track? Are we moving towards a global recession? Is there light at the end of the tunnel? There are far too many questions and, be warned, you won’t like the answers.

Economic textbooks tell us that an economy is officially in recession when growth contracts over two quarters. A recent article in The Washington Post says there are nine economies including Germany, UK, Brazil and Korea on the brink of a recession, threatening to push the US, the world’s largest economy, over the edge. The US–China trade war isn’t helping things either. China’s economic growth fell to 6.2%, it’s lowest since 1992. Also battling a growth slowdown of its own is India with economic growth falling to 5.7% for the April-June quarter, marking the fourth quarter of declining growth. The previous quarter (Q4FY19) had posted the lowest number in five years at 5.8%, after a steady decline from 8% in Q1FY19. 

AjIt Ranade Chief economist, Aditya Birla GroupThe previous growth slowdown lasted for five consecutive quarters after March 2011. And it looks like we are staring at another significant economic slowdown. “Average growth for the first eight months of 2019 is around 5.5% which is something that has not happened in one or two decades. That is a serious slowdown,” says Ajit Ranade, chief economist, Aditya Birla Group. Core sector growth is at four-year low, investments at 15-year low and gross tax revenue during the April-June quarter at 1.4% compared with 22.1% last year. No wonder then Moody’s has cut India’s GDP growth rate to 6.2% for 2019 against its earlier projection of 6.8%. Even if the economy grows by 5.8% in the second quarter, it still needs to grow by 6.6% in the second half to get to the projected 6.2% for 2019 and that is a tough ask given the current scenario. “A structural slowdown cannot be cured by pumping more money as fiscal stimulus or by slashing inte

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