MC Poll | Indian economy likely slowed to a 6-quarter low of 6.5% in Q2 this fiscal

Muted government spending, slowing merchandise exports, and subdued quarterly results in Q2 slowed down the economy.

The Indian economy likely to have decelerated to a six-quarter low of 6.5 percent in the second quarter of this fiscal (FY25), compared with 6.7 percent in the previous quarter, according to a Moneycontrol poll of 11 economists.

Forecasts in the MC poll conducted earlier this week ranged from 6.2 percent to 6.8 percent.

The economy had grown 8.1 percent in the second quarter of FY24.

Economists noted muted government spending, slowing merchandise exports, and subdued quarterly results in the second quarter slowed down the economy.

“We expect Q2 GDP growth at 6.8 percent YoY and the full-year FY25 growth to be 7 percent YoY. High-frequency economic indicators, including GST collections, PMIs, and petroleum consumption, point to a temporary setback in Q2. Private consumption continues to be a challenge, particularly due to the slowdown in urban demand,” said Rajani Sinha, chief economist at CareEdge.

The government will release data for the second quarter GDP on November 29.

Risks to full-year growth

Experts indicate that sluggish urban demand will also continue in the second half of the year.

“There has been a slowdown in urban wage growth since H2FY24, and the impact on urban demand is visible in H1FY25. Given the slowdown in corporate profit growth, the moderation in urban wage growth and, in turn, urban demand is likely to persist in H2FY25,” said Gaura Sengupta, predicting the economy to grow 6.6 percent in FY25.

While the Reserve Bank of India expects the economy to accelerate at 7.2 percent in FY25, and the Economic Survey pegs the growth rate at 6.5-7 percent, there has been a slight moderation to forecasts in the Moneycontrol poll.

The median forecasts in a poll of 13 economists conducted in August had projected the economy to grow 7 percent in FY25. The ten forecasters in the November Moneycontrol poll predicted the economy would grow 6.8 percent in FY25, with forecasts ranging from 6.6 percent to 7 percent.

“Trend growth remains on track, while there are dents in the cyclical armour. Idiosyncratic developments, delayed start to the public capex spending, benign listed corporate earnings, and moderation in real purchasing power dented output in first half of the fiscal year. We are counting on a catch-up in momentum in the second half to lift full-year growth to 6.7 percent,” said Radhika Rao, senior economist at DBS.

The economists noted global uncertainty, slowing consumption demand, and persistent food inflation as the main impediments to growth this year. “We are watchful of the impact of a slowdown in personal loan growth on private consumption as well as geopolitical developments on commodity prices and external demand,” said Aditi Nayar, chief economist at ICRA.

Inflation concerns

Inflation forecasts were revised upwards compared with the August poll. The November Moneycontrol poll’s median estimate of 4.7 percent was higher than the August estimate of 4.5 percent.

The upper bound of the poll was 5 percent, compared with 4.8 percent in the August poll, while the lower end was also 20 bps higher, at 4.4 percent.

Experts were unanimous in their assumption that the RBI would hold rates in the upcoming monetary policy review meeting in December, despite ministers making a case for a rate cut.

At its meeting in October, the RBI had held the policy rate at 6.5 percent for the tenth time in a row.