Reacting to news that India’s economy grew by 6.1% in Q1 2015, while Brazil contracted by only 1.6% over the same period, Craig Botham, emerging markets economist at Schroders said: “We think the numbers could trigger monetary policy easing… We expect further growth, and further contraction, for India and Brazil respectively as the year progresses.”
While India has scope to move sooner than Brazil because of its lower inflation rate, Botham said the firm expects a further 25 basis point cut at the next meeting.
“For Brazil, the central bank is still battling to anchor inflation expectations, and seems unlikely to turn dovish just yet. But we still believe that growth will deteriorate further in the second and third quarters, and will be of sufficient concern to prompt easing at the end of the year,” he said.
According to Botham, the Indian GDP imprint was below analyst expectations of 7%, while the Brazilian number was slightly ahead of expectations.
Part of the reason for the large difference between the 6.1% recorded in Q1 in India and the 7.5% growth level seen in the prior quarter, Botham said, was India’s recent decision to switch to using gross value added, rather than gross domesitic product as its preferred measure of growth.
“The difference between the two is that GDP includes the net taxation position (taxes less subsidies), which might explain how Indian GDP was able to beat expectations and grow 7.5%, year-on-year (versus the 6.1% growth recorded by GVA, which does not include net tax),” he said.
While he adds that there is some questions over the accuracy of the new data set, he said that there was weaker growth evidence across most sectors, excluding manufacturing, supported by stronger consumption and investment.
Within Brazil a strong net export performance helped offset somewhat a contraction across other sectors of the economy.
“Given the recent unemployment, wage growth and consumer confidence numbers, this is unsurprising,” Botham said.
