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India’s economic growth slowed down to 5.4% year-on-year for the quarter ended 31 December from 8.5% in the previous quarter – prompting economists to significantly lower their advance estimate for full-year growth.
The fall in gross domestic product (GDP) was much lower than the 6.2% to 6.8% range predicted by economists Capital.com spoke to. The government agency National Statistical Organization (NSO) revised down its GDP growth estimate for the year ending March 2022 to 8.9% from an earlier mark of 9.2%.
Economists are, however, drawing some comfort from the 7% expansion in private consumption in the last quarter and surge in consumer confidence in January 2022 even as the third wave of Covid-19 hit.
Mixed signals from the economy
“The GDP numbers for the quarter disappointed. Growth was expected to slow due to fading base effects, but the extent of the slowdown turned out to be steeper than anticipated,” said DBS economist Radhika Rao said in a report.
“The supply-side measure also moderated to 4.7% vs 8.4% in the quarter before. Besides unfavourable base effects, the internals was mixed – firm consumption, but moderation in investments, manufacturing and construction activity,” she added.
The latest data also showed weakness in the agricultural sector extended in the latest quarter to 2.6% year-on-year owing to uneven monsoon and weaker rural demand.
ICRA chief economist Aditi Nayar – Photo: ICRA
The manufacturing segment was just about in positive territory with a 0.2% growth, while construction output decelerated by 2.8%. The weakness in manufacturing was driven by supply chain disruptions, especially for the automobile sector.
Estimates below expectations
“While an adverse base was expected to flatten growth in October-December, the initial estimates of the NSO are sorely below our expectations, with a marginal rise in manufacturing and a contraction in construction that is surprising despite the heavy rainfall in the southern states,” said Aditi Nayar, chief economist at rating agency ICRA, adding she revised the yearly outlook to 8.5% from 8.9%.
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For economists like Nayar, the feeble 2% year-on-year rise in gross fixed capital formation was the biggest disappointment, which reiterated the tentativeness of the investment cycle.
Barclays also revised its GDP growth forecast downwards to 8.8% from 10% previously. “The growth recovery showed signs of fatigue, dragged by supply shortages. The impact of Omicron in January, albeit mild, could drag further on the recovery in Q1 (first quarter) 2022. As a result, we revise our full-year growth forecast downwards to 8.8% y/y (year-on-year) for FY 21-22 from 10% y/y previously,” said Rahul Bajoria, chief economist in India at Barclays.
Impact of war not factored in
Many economists pointed out that the pandemic situation was getting manageable as there is a gradual recovery in consumption to near pre-Covid-19 levels and higher private sector participation.
“The most encouraging piece of the disaggregated GDP data is the 7.0% expansion in private consumption in Q3 FY2022, which coupled with the mild rise in current consumer confidence in January 2022 despite the onset of the third wave, bodes well for the outlook for demand and capacity utilisation,” Nayar said.
Economists said that private sector players were expected to draw confidence from demand visibility and deleveraged books to step-up capital expenditure plans as supply-side catalysts fell into place by way of the government’s push in infrastructure and capital expenditure, which are expected to also lift the aggregate capacity utilisation levels.
The Indian economy faces severe challenges as the ongoing stand-off in Ukraine has pushed up prices of key energy commodities beginning with crude oil, which has sustained over $100 per barrel ever since Russian forces entered Ukraine. India meets more than three-quarters of its energy needs from the import of crude oil and gas.
At the same time, the country’s central bank has vowed to keep the monetary environment conducive to spur economic growth without increasing rates even if it means a temporary surge in inflation.
Source link:Capital
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