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Economists trim FY22 growth forecasts after disappointing Q3 GDP number

The lower-than-expected October-December 2021 GDP growth number of 5.4 percent has forced economists to reconsider their growth forecasts for the full year.

March 01, 2022 / 02:21 PM IST
Representative image.

Representative image.

Economists have begun lowering their forecasts for India's growth in FY22 following the weaker-than-expected GDP data for October-December 2021.

Data released by the Ministry of Statistics and Programme Implementation on February 28 showed India's GDP grew by 5.4 percent in the last quarter of 2021, well below expectations of 6.2 percent, as per a Moneycontrol survey.

At 5.4 percent, the October-December 2021 growth rate was 120 basis points lower than the Reserve Bank of India's (RBI) forecast of 6.6 percent, made in December 2021. The RBI did not spell out an updated forecast for the quarter in the latest resolution of the Monetary Policy Committee, released on February 10.

The statistics ministry's second advance estimate also saw it peg GDP growth for FY22 at 8.9 percent, 30 basis points lower than the first advance estimate of 9.2 percent.

The government had previously said in January 2022 that the Indian economy contracted by 6.6 percent in FY21, up from the earlier estimate of a 7.3 percent contraction.

"For the full year FY22, we revise down our GDP growth estimate to 8.9 percent. Some dampening of activity levels is expected in Q4 due to the Omicron wave, but it's expected to be much milder than the previous waves," noted Gaura Sen Gupta,  IDFC First Bank's India economist.

Sen Gupta previously expected the Indian economy to grow by 9.2 percent in FY22.

Others to make similar downward revisions include Acuite Ratings, which cut its forecast by 30 basis points to 9.2 percent. The largest downward revision was from Barclays, who have slashed their estimate for this year by a massive 120 basis points to 8.8 percent.

According to Rahul Bajoria, Barclays' chief India economist, the recovery is showing "signs of fatigue, dragged by supply shortages".

"The impact of Omicron in January, albeit mild, could drag further on the recovery in Q1 2022," Bajoria said in a note on February 28.

The second advance estimate suggests India's GDP growth will slow down further to 4.8 percent in January-March 2022, data for which will be released on May 31. However, economists see a downside even to this subdued growth number.

"Given the impact (though not so serious) of Omicron variant and Russia-Ukraine crisis in Q4, we believe that Q4 GDP growth may not be more than 4.5 percent," said Soumya Kanti Ghosh, State Bank of India's group chief economic adviser.

Aditi Nayar, ICRA's chief economist, concurred, saying the implied 4.8 percent growth for the current quarter looked "rather optimistic" on account of the hit contact-intensive sectors took in January 2022 during the third wave and the impact of rising commodity prices from Russia's invasion of Ukraine. Moreover, the base effect is not favourable anymore.

While most economists are now gravitating towards the government's estimate of 8.9 percent growth this financial year, some continue to see a sizeable downside. ICRA's Nayar sees the GDP growing by 8.5 percent this year, while Nomura's forecast is a shade lower at 8.4 percent.

"We believe the downward surprise in the Q4 2021 GDP reading attests to the weak nature of recovery and how the broader growth outlook however remains largely lacklustre. It suggests that once the volatility in data from the third wave subsides in February, the 'steady state' growth rate runs the risk of lagging," Nomura's economists said in a note on March 1.

Siddharth Upasani
first published: Mar 1, 2022 02:21 pm