As well, international experience suggests the composition of output tends to be different after a banking crisis. In general, investment spending is the component of GDP that is invariably weaker, particularly investment in the non-tradable sector.
In contrast, because the Indian rupee has been fairly stable, if not overvalued, in real terms, export-led growth is less likely. ANZ Research expects economic growth to be led by household consumption, with some possible support from government spending.
Household consumption is gradually but consistently turning up alongside a recovery in rural incomes, complemented by the government’s infrastructure spending program. High-frequency indicators such as auto sales and ‘currency in circulation’ provide confirmation.
Overall, ANZ Research believes household consumption is set to become a larger driver of growth, complemented by some limited support from public spending. Private investment, the most-important driver of growth from a medium-term perspective, will remain constrained.
Richard Yetsenga is Chief Economist and Sanjay Mathur is Chief Economist, Southeast Asia & India at ANZ