Photographer: Prashanth Vishwanathan/Bloomberg

GDP Data Set To Show Growth Moderation In October-December Quarter

Growth in the Indian economy is likely to have slowed in the October-December quarter as financing from non-bank lenders became constrained and consumption moderated. Official estimates for third quarter growth will be released on Thursday.

Ahead of the release, a Bloomberg survey of 41 economists pegged GDP growth at 6.8 percent in the third quarter of FY19. This compares to GDP growth of 7.1 percent in the second quarter of FY19 and 7.2 percent in the third quarter of the last financial year.

Growth in gross value added (GVA), a preferred measure of economic activity, is estimated at 6.5 percent in the third quarter of FY19 according to 29 economists surveyed by Bloomberg. In the second quarter, GVA growth stood at 6.9 percent.

For the full financial year, government estimates peg GDP growth at 7.2 percent. The economy grew at 7.65 percent in the first half, suggesting slower growth in the second half.

According to estimates by Soumyakanti Ghosh, chief economist at State Bank of India, the agriculture sector is expected to grow at 3.6 percent in the third quarter of the current financial year, while manufacturing is estimated to grow at 6.8 percent. The services sector could show growth of 7.1 percent, Ghosh said.

Nomura Global Market Research, however, expects signs of a broader slowdown to start emerging. The ongoing cyclical slowdown led by consumption, is now spreading to non-financial services and external sectors, it said in a report dated February 19. Industrial and investment indicators still seem to be holding up, it noted.

We expect GDP growth to slow to 6.6 percent in October- December quarter and further to 6.0-6.5 percent from January to June 2019. Fiscal and monetary policies are turning expansionary but are unlikely to change the near-term trajectory.
Nomura Global Market Research

What High Frequency Indicators Show

Some high frequency indicators foretold of an impending slowdown.

On a three-month moving average basis, domestic passenger vehicle sales contracted by 3.6 percent in the second quarter of the current financial year and by 0.8 percent in the third quarter of the current financial year, shows data from SBI Economic Research. For the month of January 2019, domestic passenger vehicle sales fell 1.9 percent.

However, demand is expected to pick up in the fourth quarter, Care Ratings stated in an update on the auto industry on Feb 22, 2019.

Growth in diesel consumption moderated to 2.8 percent on a three-month moving average basis in the quarter ended September 2018. Growth fell further to 1.9 percent in the quarter ended December 2018.

Diesel consumption picked up in January 2019, rising 6.2 percent over last year.

The Index of Industrial Production, a broader gauge of the industrial economy, recorded 5.3 percent growth in the second quarter of FY19. This growth, however, fell to 3.7 percent in the third quarter.

IIP has been on a declining trend over the last two quarters, revealing that both consumption and investment demand are slowing, said Ghosh.

Contrary to indicators suggesting a slowdown, growth in bank credit has remained strong at between 12-15 percent. This may be partly because of an increase in credit to NBFCs who have shifted borrowings from the markets to banks.

However, a slowdown in fresh lending and disbursements from NBFCs is likely to impact some segments in the third and fourth quarters of the year.