Growth in 2nd half of FY23 falls to 4-4.5% on headwind: report

Bombay:

The many mounting headwinds, both domestic and external, will more than halve GDP (gross domestic product) growth to 4-4.5 percent in the second half of FY2023, canceling out the better numbers in the first half, says a report .

In the first half of the current fiscal year, the economy grew by 9.7 percent – ​​6.3 percent in the September quarter and 13.5 percent in the previous three months – and full-year forecasts range from a low of 6.6 percent cents to 7 percent.

According to India Ratings, the economic recovery in H1FY23 was resilient and encouraging, but challenges such as high inflation and weak demand (both domestic and external) are expected to push economic growth back from 9.7 to 4-4.5 percent in H2FY23. percent in the first half of the fiscal year.

However, the agency did not make a full-year forecast. Data for the September quarter indicates that despite geopolitical uncertainty and fears of a global slowdown, the domestic economy has shown resilience. In fact, its Q2 growth print lags only Saudi Arabia’s 8.6 percent of major economies, the bureau says.

Despite this, the economy still has much ground to cover lost to the pandemic, as the CAGR during Q1FY20-Q2FY23 appears to be a paltry 2.5 percent, significantly lower than the CAGR of 5.3 percent during Q2FY17-Q2FY20.

Even at a disaggregated level, key employment-intensive sectors such as manufacturing and commerce, hotels, transportation, and communications achieved CAGRs of just 2 percent and 0.7 percent, respectively, while the CAGR for Q2FY17-Q2FY20 was 3.4 and 8.1. percent, respectively.

The report also points to subdued wage growth at the bottom of the income pyramid, resulting in a lopsided recovery in consumer demand. A broad-based recovery in consumer demand is absolutely necessary for sustainable growth.

The road ahead will not be smooth as synchronous global monetary tightening has increased financial fragility and downside risks to global growth, which would also affect the Indian economy, the report notes.

The report also points to burgeoning growth in industrial production, which fell from 9.5 percent year-on-year to an eight-quarter low of 1.5 percent in Q2FY23.

A closer look at factory production data suggests that eight sectors, representing about 25 percent of the manufacturing sector, contracted in the second quarter, keeping Q2 manufacturing sector growth at a lukewarm 1.4 percent. The sectors contracted are clothing, textiles, leather and related products, pharmaceuticals, medicinal and related products and electrical equipment.

The bureau believes that many industrial sectors will face export headwinds due to the slowdown in growth in key trading partners.

Noting that the services sector is still sending mixed signals, the industry says growth in port freight and rail freight slowed to a seven-month low of 3.7 percent and a 27-month low of 1 percent, respectively. 4 percent. Air freight fell by 15.1 percent during the same period, making it the largest contraction since September 2020. As a result, both air and rail passenger transport are lagging behind pre-pandemic levels.

However, the financial sector is seeing a strong rebound with non-food credit growth at a robust 17.1 percent at its 34-month high, while non-food credit growth is fairly broad-based.

After many quarters of success, goods exports contracted by as much as 16.7 percent to $29.8 billion in October – the first contraction in 19 months. Merchandise imports also lost momentum, down just 5.7 percent in October, and all available indicators show that exports will continue to face more headwinds.

Another major headwind is persistent inflation, at both consumer and wholesale levels. Retail and wholesale inflation in October were 6.8 percent and 8.4 percent, respectively. And the bureau expects retail inflation to ease to about 6.6 percent in November and to decline further thereafter, provided the war in Ukraine does not worsen.

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