BackWith GDP growth likely to be weak in Q1, hopes pinned on a rebound in H2
Expectations from June quarter GDP are muted considering subdued demand conditionsAgriculture may see some gains but manufacturing and services growth would remain weak
PremiumThere are no prizes for guessing that India’s economic growth in the June quarter (Q1) is likely to be dismal. Various indicators related to consumption and investment mirror the pain in the economy, even as aggregate demand conditions remain subdued.
In this grim backdrop, economists are working with muted expectations for Q1 gross domestic product (GDP) numbers.
Growth in GDP and gross value added is seen softening further from 5.8% and 5.7%, respectively, recorded in the March quarter. Consensus estimates by Bloomberg show that GDP growth could slip to 5.7% in Q1.
This would extend the slowdown in GDP to five quarters in a row, and would be down from a peak of 8.1% seen in the March quarter of FY18, according to Bloomberg estimates.
Sector-wise, agricultural growth is expected to improve marginally. While crop production is likely to be muted, allied sectors such as forestry, livestock and fishing are expected to support a modest improvement sequentially.
However, growth in manufacturing and services sectors is expected be lacklustre. Factors such as political uncertainty in the first half of the quarter, the continued liquidity crunch in non-banking financial companies, weak rural demand and global headwinds weighed on growth.
But recent measures announced by the finance minister to propel demand and the windfall gain from the Reserve Bank of India raise hopes of a recovery in the second half (H2) of the year. Anubhuti Sahay, senior economist at Standard Chartered Bank, said, “GDP growth is nearing a bottom, in our view, and is likely to witness a statistical rebound in H2-FY20."
Economists at domestic brokerage firm Nirmal Bang Equities Ltd and credit rating agency India Ratings and Research Pvt. Ltd share this view. Easing of financial conditions, thanks to significantly accommodative monetary policy, and faster transmission would aid demand revival, they said.
Of course, not everyone agrees. Radhika Rao, economist at DBS Bank Ltd, says, “Most other lead indicators that we track, including auto sales, production, core industries index and service sector categories reinforce a broad-based pullback in activity. We suspect that the weaker momentum likely extended into the September quarter before stabilization sets in."
And even though the government is taking steps to address the domestic slowdown, external risks cannot be ignored. Downside risks to growth could emanate from a synchronized global slowdown, which could further drag exports and needs monitoring.
Meanwhile, Goldman Sachs recently highlighted that as of June 2019, the current slowdown has lasted for 18 months—the longest slowdown episode since 2006. However, it foresees a mild recovery by March next year provided consumer confidence improves substantially and domestic financial conditions ease significantly
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