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India's economy just suffered a sharp slowdown

India's economy has downshifted from warp speed.Gross domestic product expanded 7.1% in the quarter e...

Posted: Nov 30, 2018 2:55 PM
Updated: Nov 30, 2018 2:55 PM

India's economy has downshifted from warp speed.

Gross domestic product expanded 7.1% in the quarter ended September, according to official data. That's a big step down from 8.2% growth in the previous quarter.

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The slowdown was sharper than analysts had expected. But the reduced rate still places India ahead of China — which grew at 6.5% over the same period — as the world's fastest-growing major economy.

India's economic performance is being closely watched as next year's general election looms into view. Prime Minister Narendra Modi won office in 2014 after a campaign in which he promised to boost India's economy and create millions of jobs.

Shilan Shah, an economist at Capital Economics, cautioned that India's GDP statistics are not always the most reliable. But he said recent data on industrial production and vehicles sales also indicated weaker growth.

Still, the torrid pace of expansion in the previous quarter would have been difficult to maintain. Shah said he expects growth to remain at healthy levels.

"The economy should continue to expand rapidly over the coming months, supported by looser fiscal policy ahead of next year's general election," he said.

Pranjul Bhandari, chief India economist at HSBC, said that growth was likely to remain above 7% for the next few quarters, a pace that can be sustained "without stoking macroeconomic instability."

Some of the biggest pressures on the Indian economy have eased in recent weeks.

A 35% drop in oil prices since early October has helped India, which is one of the world's top energy importers. The rupee, which hit a series of record lows against the dollar this year, strengthened more than 5% in the past month.

Shah said that India's central bank, which held off on raising interest rates last month after two hikes earlier this year, will likely keep them unchanged again when it meets next week.

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