India Q3 GDP Growth Forecasts: Better But Not By Much

The Indian economy may have shown a modest pick-up in growth in the October-December quarter, helped by steady agriculture output, restocking and some support from government spending.

India’s GDP growth may rise for the first time in six quarters, shows a poll of 42 economists by Bloomberg. The median estimate of growth is pegged at 4.7 percent for the third quarter compared to 4.5 percent in the second quarter. Gross Value Added is estimated to grow by 4.5 percent, as against growth of 4.3 percent in the same period.

The government will release Q3 GDP data on Friday.

Wide Range Of Estimates

While many believe the economy has bottomed out, a host of prevailing uncertainties have meant that estimates of growth vary widely. Forecasts for Q3 GDP growth range from 4.3 percent penciled in by economists at Nomura to 5 percent by Barclays Plc.

According to Barclays, higher reservoir levels and healthy soil moisture will likely boost yields in the ongoing Rabi crop season, supporting the agriculture sector. In the industrial sector, high-frequency data has pointed to sequential improvement for segments such as coal, steel, and cement. Services, which include the financial sector, will remain weak, the research house added.

State Bank of India’s economic research division expects a more modest 4.5 percent GDP growth in the third quarter. The bank’s composite leading indicator, comprising 33 high-frequency variables, rose by 22 percent in Q3 FY20, compared to acceleration rate of 65 percent in Q1 FY19, according to a research report published on Wednesday.

“We expect the gap between GVA and GDP to widen further in FY20 as the transfer of government payments is witnessing a slowdown in Q4 FY20,” said Soumyakanti Ghosh, chief economist at SBI.

DBS Bank, which pegs Q3 GDP growth at 4.4 percent and GVA growth at 4.3 percent, said that leading indicators for the quarter remained mixed.

“Restocking demand is likely to have lifted production after a prolonged period of drawdown. Corporate earnings also stabilised in the quarter. PMI manufacturing indices ended the year on a strong note,” wrote Radhika Rao, chief economist at DBS.

Rao, however, sees the potential for weakness emerging from the agricultural sector due to unseasonal rains. “Signs for trade and retail/wholesale trade indicators were mixed as commercial vehicle sales fell by a smaller extent, but goods and services tax collection, as well as railway traffic, moderated,” she added.

Local, Global Uncertainties To Keep Policy Accommodative

Along with prevailing local uncertainties, the global environment has turned treacherous with the outbreak of Coronavirus.

The April- December 2019 data for India’s imports shows that there are 19 categories in which China has more than half the share of imports and these are mostly consumer goods. This can impact local importers and in turn consumers adversely, Ghosh said.

Given both the domestic and global pressures on growth, monetary policy is expected to remain accommodative.

Minutes of the February meeting of India’s Monetary Policy Committee showed that most members saw space for further policy action once inflation pressures recede. In addition, RBI has prodded rates lower using tools such as long term repo operations despite keeping the benchmark policy rates unchanged.

“While economic recovery is is underway, we expect growth rate to remain significantly below potential, with the output gap remaining negative,” said Bajoria of Barclays.

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While elevated inflation will keep MPC on hold in the near term, the RBI will continue to act, he said. “With no further room for easing, we expect the RBI to focus on easing liquidity conditions and strengthening policy transmission into retail lending rates.”