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Last Updated : Dec 03, 2019 01:17 PM IST | Source: Moneycontrol.com

Q2 GDP growth rate was lowest in 6 years, will December quarter be worse?

in Q2, the GDP growth slowed to 4.5 percent, its lowest in 26 quarters, broadly in line with the estimates of economists and market experts.


The July-September quarter GDP numbers were the lowest in six years, compounding concerns about the Indian economy that continues to slow despite a string of measures taken by the government to boost growth.

The economy grew at just 4.5 percent, the slowest in 26 quarters, broadly in line with the estimates of economists and market experts. Nominal GDP growth stood at 6.3 percent, the lowest since Q4FY09.

Real GDP growth decelerated to 4.5 percent from 5 percent a quarter ago and 7 percent in the year-ago period, entirely driven by 22-quarter low growth in investment.

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There was, however, an uptick in the pace of expansion of the government final consumption expenditure (GFCE), which climbed to 15.6 percent from 8.8 percent, and private final consumption expenditure (PFCE) that rose to 5.1 percent from 3.1 percent.

Rating agency ICRA highlighted that government spending was one of the key drivers of GDP growth in Q2FY20. Excluding GFCE, the GDP growth would be considerably lower at 3.1 percent in Q2FY20.

"The improvement in PFCE growth in sequential quarters is somewhat at odds with the evidence from various sectors regarding subdued consumption sentiment in rural as well as urban areas," ICRA said.

The road ahead

Analysts and economists are expecting a mild recovery in the second half of FY20, however, they are almost unanimous that the numbers will remain subdued, as the lead indicators for October have revealed a mixed trend.

"At present, the extent of the recovery that we should anticipate in the economic growth momentum in H2 FY20 remains unclear. In our view, improvement in certain activities such as mining and construction after the lull in rains, a waning of the unfavourable base effect in some sectors such as automobiles, and a gradual improvement in sentiment, should lead to some pickup in GDP and GVA growth in H2 FY2020. Nevertheless, there are downside risks to our current FY2020 GVA and GDP growth projections of 5.6 percent and 5.8 percent, respectively," said ICRA.

Sujan Hajra, Chief Economist at Anand Rathi, is hopeful that the situation will improve in H2FY20.

"With strong policy measures since September 2019, acceleration in government spending, infra tendering, accommodative liquidity and interest rate policies, we expect marked rebound in H2. Recent trends in bank credit, effective lending rate, exports and non-oil imports support our positive view of future growth," Hajra said.

In contrast, Motilal Oswal Financial Services is of the view that the December quarter numbers could be worse than those of Q2.

"Overall, there were hardly any surprises in Q2FY20 GDP growth data. Nevertheless, we believe that the expectation of better growth in Q3FY20 may not pan out, as leading indicators suggest that October 2019 – a festive month – was the worst in the current cycle,” Motilal Oswal Financial Services said in a recent report.

India's growth could weaken further to nearly 4 percent in Q3FY20, which would mark a trough, it said. For FY20, the brokerage firm has cut the growth forecast from 5.7 percent to around 4.5 percent.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

 

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First Published on Dec 2, 2019 03:59 pm
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