Japanese brokerage Nomura on Friday massively cut its GDP forecast to a low 4.9 percent for the year from 5.7 percent earlier, saying the economy is going through a “deeper trough” and even a sub-par recovery is at least a year away. While there have been a rash of growth estimate cuts, including a 0.70 percentage points reduction by the RBI last month to 6.1 percent, the Japanese brokerage’s estimate is so far the lowest.

The negative forecast came on a day when the international rating agency Moody’s has revised down the outlook on the sovereign rating to negative from positive citing the many gathering storms around the economy, which is topped by the falling growth rate. The massive reduction in growth forecast comes amid a slide in GDP growth to a six-year low of 5 percent for the June quarter and amid high frequency indicators showing a further stress in the growth engine, which may lead the Q2 GDP printing even lower.

However, many bodies including RBI had been pegging for a pick up in the second half. “Belying our expectations of a recovery starting in Q3, high-frequency indicators have plunged and credit conditions remain tight amid weak global demand. As a result, we now expect a delayed recovery and the subsequent pickup to be sub-par,” the Nomura analysts said.

While acknowledging the steps taken by the government and the RBI to prop growth up, it pointed out that a “clogged credit channel of policy transmission and weak global growth” are major headwinds for the economy now. It had earlier forecast a 5.7 percent uptick in growth, but it now believes that a pick-up will happen only in FY21 when it sees it is printing in at a 6 percent.

It said RBI will cut rates by another 0.50 percent to 4.65 percent by mid-2020. It also forecast a higher fiscal deficit of 3.7 percent-40 bps more than the government target, as no additional revenue stream has been identified to cover up for the massive Rs 1.45 lakh crore corporate tax giveaways.

Calling for a closer monitoring of the credit and financial stability risks, it said, “current tight credit conditions will result in higher bad loans and weaker credit growth, but not in a systemic contagion.” Going a step beyond the oft-cited ‘twin balance sheet problem’ afflicting the economy, it said there is a third aspect to the same as well with shadow banks facing difficulties and hence making it a “triple balance sheet” problem.