‘Q2 GDP surprise to signal robust growth’
- The optimism that real GDP growth will be higher than 6.5%, the article said
There is a “wide consensus” supported by economic forecasts that real gross domestic product (GDP) growth in the second quarter will turn out to be better than the Reserve Bank of India’s (RBI) projection of 6.5%, an article in the central bank’s November bulletin said on Thursday.
The estimates for the second quarter (Q2) of FY24 are set to be released at the end of this month.
The article said that since the RBI’s projections factored in a turnaround in the momentum of activity into expansion in Q2, if the consensus turns out to be true, it would imply a stronger pace of activity than projected.
India’s economy expanded 7.8% in the first three months of the financial year and RBI governor Shaktikanta Das recently expressed confidence in the domestic economy. “Looking at the momentum of economic activity—a few early data points have come in—I expect Q2 GDP numbers which will come at the end of November in all probability will surprise on the upside,” Das said on 31 October.
The article, written by RBI officials, had the usual disclaimer that the views were those of the authors and not of the central bank.
The optimism that real GDP growth will be higher than 6.5%, the article said, appears to be supported by corporate results for the September quarter.
“Bottom line (profit) growth was robust and broad-based, with companies in sectors such as oil and gas, automobiles and construction delivering sharp increases in profitability,” it said.
Information technology (IT) companies, on the other hand, declared weaker earnings results than in the preceding quarter and many of them have lowered their forward revenue guidance in response to global macroeconomic uncertainty and reduction in discretionary expenditure by their clients, it added.
However, auto companies posted strong revenue performance as the main driver of profitability, spurred by volume growth, lower raw material costs and price hikes. While banks were powered by strong credit demand which pushed up their revenue, rising interest expenses on account of higher interest rates on deposits exerted some pressure on their margins, it said.
This optimism also comes at a time when the global economy is showing signs of slowing down in the final quarter of calendar year 2023, with manufacturing languishing. Going forward, tightening financial conditions are a significant risk to the global outlook, it said.
“In India, the momentum of the change in GDP is sequentially expected to be higher in Q3 FY24, with festival demand remaining ebullient. Investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalization, and indigenization providing a boost,” it said.
In other signs of consumption demand, the article said close to 80% of purchases of consumer durables were reportedly through consumer financing schemes, aided by attractive equated monthly instalment (EMI) offers.
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Business NewsEconomy‘Q2 GDP surprise to signal robust growth’
First Published:16 Nov 2023, 11:31 PM IST
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