Nomura Economists Suggest India’s Economy Enters Cyclical Slowdown

• Nomura economists predict India’s economy may enter a cyclical growth slowdown, with growth potentially falling below 6.7% this year.

• Weak urban demand is expected to remain insipid due to high interest rates and moderate wage growth.

• The weakening of urban consumption indicators is linked to lower real salary hikes, fading pent-up demand, and tight credit conditions.

• Nomura has projected GDP growth of 6.7% this year and 6.8% in 2025-26, but downside risks to this forecast are rising.

• Companies are scaling down their salary outlays due to urban inflation, with real salary and wage expenditure growth of non-financial corporates moderated to 0.8% year-on-year in Q2 FY25.

• The post-pandemic surge in pent-up demand has faded, monetary policy is tight, and the RBI’s macroprudential crackdown on unsecured credit is reflected in the slowdown in personal loans and lending growth by non-banking finance companies.