India’s economy expanded by 4.7 per cent in the December quarter compared with the same period a year earlier, the slowest pace in more than six years, and analysts see the global impact of the coronavirus further stifling growth in Asia’s third-largest economy.
The GDP data released on Friday showed consumer demand, private investment and exports all struggling, while higher government spending and an improvement in rural demand lent support.
The read-out for the final quarter of 2019 matched the forecast of analysts in a Reuters poll, but was below a revised – and greatly increased – 5.1 per cent growth rate for the previous quarter.
Abheek Barua, Chief Economist, HDFC Bank
“The 4.7 per cent growth is in line with economists’ expectations. However, with a likely impact of the coronavirus beginning to play out in the last quarter and expenditure compression by the government, last quarter GDP growth could disappoint. This could mean that GDP for the year could be lower than 5 per cent.
The coronavirus remains the critical risk as India depends on China for both demand and supply of inputs. The case for an early rate cut despite adverse inflation optics remains and globally central banks might have to go in for aggressive monetary easing to offset a pandemic led recession.”
Madhavi Arora, Lead Economist, Fx And Rates, Edelweiss Securities
“With Asia growth being suppressed in 4QFY20 amid COVID-19 impact, external demand spillover to India amid supply disruptions would weigh marginally on India’s near-term growth.”
It appears growth slowdown is not just cyclical but more entrenched with consumption secularly joining the slowdown bandwagon even as investment story continues to languish.
Factors including still-tight financial conditions, weakening household and corporate balance sheet, sluggish private capex and lack of business confidence, possible slower public capex amid fiscal constraints continue to weigh and require continued innovative policy levers both from the government and the RBI.”
Rupa Rege Nitsure, Chief Economist, L&T Financial Holdings
“The only silver lining in the overall picture of gloom and doom is the steadily improving growth of agriculture and allied activities. This sector, besides the government spending on public administration, has prevented the growth from sliding further.
The revisions in previous quarter numbers do happen routinely with better availability of data. I don’t think that should materially change anything.
Manufacturing has been falling consistently as per the IIP data and the real weak spots are manufacturing, especially capital goods, construction, trade and financial services.”
Madan Sabnavis, Chief Economist, Care Ratings
“The Central Statistics Office has not considered the coronavirus in their estimates, which can impart a downward bias to the GDP growth projection of 5 per cent for the year, as Q4 has to register a very high growth rate of 5.5 per cent given the three quarterly numbers of 5, 4.5 and 4.7 per cent.
The numbers are otherwise on expected lines with disappointing growth in manufacturing and the push coming from services, especially the government. Investment still is down and unlikely to recover in Q4.”
Radhika Rao, Economist, DBS Bank, Singapore
“3QFY GDP was largely in line with consensus, with notable revisions to 1Q and 2Q data. Strength in private consumption surprised on the upside, but the drag from investments persist as capacity utilisation remains sub-par.
With global risks on the rise and a challenging trade/ manufacturing outlook in 4QFY owing to the COVID-19 developments, production might face some headwinds in 4QFY.
Hopes are high that as China gradually returns to work, supply disruptions will abate and production will play catch-up to normalise prices and supplies in 1QFY21.
Higher government expenditure provides a timely counterbalance as does a smaller negative in net exports and a leg-up in service sector output. We maintain our 5 per cent growth estimate for this fiscal year and 5.8 per cent for next FY.
With fiscal policy facing limited space, monetary policy will continue to heavy lift. As inflation eases and heads to the 4 per cent midpoint of the target, the markets will price in cuts in 2H. Whether this cooling-off in inflation opens the door for rate cuts, will also hinge on growth prospects.
If our expectations of a shallow recovery get underway in 2020, helped also by base effects, the urgency to cut rates is likely to abate.”
Sujan Hajra, Chief Economist, Anand Rathi Securities
“While the GDP growth is slightly better quarter-over-quarter, after the revision it is a drop again. But the situation seems to be improving. Private consumption has improved. Investment de-growth remains an area of concern.
While monetary policy will be supportive of growth, given the higher retail inflation in January it will be difficult for the RBI to act in the near term.”
Shashank Mendiratta, Economist, IBM
“The slowdown was led by contraction in investment for the second straight quarter. Private consumption growth ticked higher after a recovery in previous quarter, which is positive. Government spending though remained the mainstay, growing in double digit for another quarter.
“Looking ahead, high frequency indicators continue to show a mixed outcome suggesting that the growth recovery may be shallow. Even as India is relatively less exposed to economic implications from the coronavirus in China, the disruptions need to be monitored in sectors that are dependent on inputs from China. Nonetheless, India’s exposure is limited due to lack of participation in supply chain.”
Joseph Thomas, Head of Research, Emkay Wealth Management
“The message which this number conveys is that the efforts to stimulate growth should go on unimpeded for the economy to move out of this tricky terrain. While there has been quite a bit of effort from the RBI and the government through some non-conventional measures, efforts will pay dividends only if it is persistent and passes the test of what we call the critical minimum effort.
It may be another four to six quarters before we see a convincing turnaround in the fortunes of the economy in a consistent fashion. Markets may have fallen on the coronavirus scare, but it may be worthwhile pondering on the direct relationship between GDP growth and earnings growth to understand whether the markets have run ahead of the earnings trajectory, at least for some time now.”
Kunal Kundu, India Economist, Societe Generale
“The reported growth of 4.7 per cent during 4Q19 under the revised data is lower than the upwardly revised 5.1 per cent during 3Q19, indicating further slowdown in growth as was envisaged by us (from 4.5 per cent in 3Q19 to 4.4 per cent in 4Q19, while the market consensus was an improvement to 4.7 per cent) under the unrevised data.
In terms of gross value added, real growth dropped from 4.8 per cent yoy during 3Q19 to 4.5 per cent yoy in 4Q19 as per the revised data. The growth was led mainly by robust service sector activity, while manufacturing contracted for the second straight quarter.
After a series of successively lower growth, we expect an improvement in real GDP growth during 1Q20 compared 4Q19. However, in case the coronavirus epidemic becomes a pandemic, the likely nascent recovery may come unstuck till the threat recedes meaningfully.”
Karan Mehrishi, Lead Economist, Acuit Ratings & Research Limited
“Q3 print is in line with our expectations. Even though a favourable base did play a role in the slight improvement in quarterly value added, it is heartening to see green shoots in household consumption and capital formation.
Nevertheless, a tight fiscal space is constricting public expenditure, which has reported a lower contribution of GDP this quarter. Industry-wise, agro and allied, public administration and mining have shown encouraging performance in Q3 along with financial services. On the other hand, manufacturing and electricity and to an extent construction related sectors continue to exhibit contractionary tendencies.”
Prithviraj Srinivas, Chief Economist, Axis Capital
“Growth continued to decelerate in December quarter as expected by us. Consensus was looking for marginal improvement. Growth momentum was pulled down by weaker business services, construction and utilities on the supply side.
On the demand side, weaker momentum was seen in government consumption, investment and net exports. Personal consumption improved in December but it was not sufficient to stem the slide. Impending supply shock from Covid-19 coupled with fiscal belt-tightening and weak bank credit growth suggests further deterioration in growth in March quarter is likely.”
Aditi Nayar, Principal Economist, Icra Limited
“Contrary to our expectation that the GDP growth had bottomed out in Q2 FY2020, the initial growth print of 4.7 per cent for Q3 FY2020 reveals that the slowdown continued in the just-concluded quarter.
Unsurprisingly, the contraction in manufacturing in Q3 FY2020 emerged as the chief drag to gross value added growth, even as public administration and defence was the fastest growing sub-sector, driven by the high growth of government spending.
At present, it is difficult to conclude whether the risks arising from the rapid spread of the coronavirus for domestic tourism, trade and manufacturing would outweigh the improved outlook for the agriculture sector and rural spending, engendered by the encouraging outlook for the rabi crop.”
Rahul Bajoria, Chief India Economist, Barclays
“The upward revisions in historical data present a complicated picture of growth, even though high frequency data is improving. We reckon a modest recovery continues to stay intact, and will gather some more steam in coming months despite mounting global risks.”
Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank
“The softening in economic activity continues despite slight improvement been witnessed in the high frequency data for the third quarter. The downward revision to FY19 GDP figures, however, have lent favourable statistical support to the 9MFY20 GDP figure at 5.1 per cent, implying an expected 4Q GDP at 4.8 per cent to arrive at the government’s full-year expected growth of 5 per cent.
However, we remain cautious in the data ahead as the global supply chain disruptions and weakening demand amidst spread of the epidemic could pose downside risk to India’s growth.”