Q3 Economic growth stronger than figures suggest: economists

Bombay:

The apparent slowdown in India’s GDP growth in the October-December quarter was driven in large part by revisions to past data, economists said, adding that growth is moving along expected lines and the central bank may not be there. to interrupt interest rate hikes.

India’s GDP grew 4.4% in October-December, up from 6.3% in July-September, and below a Reuters poll’s forecast of 4.6%.

Growth for 2021/22 was raised from 8.7% previously to 9.1% as part of a regular schedule of revisions. Meanwhile, GDP contraction in 2020/21 was revised to 5.7%, compared to a previously estimated decline of 6.6%.

These revisions led to a higher base on which growth was measured for the October-December quarter. Without revision, GDP growth in the third quarter would have been 5.1%

The lower-than-expected growth was driven by an upward adjustment in GDP in the base year, said Pranjul Bhandari, India’s chief economist at HSBC, adding that production levels continued to improve compared to pre-pandemic quarters.

Production levels at the end of December 2022 were 11.6% higher than in the pre-pandemic quarter of 2019, Bhandari said. This is an improvement from September, when production was 9.4% above the comparable pre-pandemic quarter, she added.

Citibank economists in India said the sequential growth rate continued in the third quarter, implying the economy is following the path we saw in the pre-Covid quarters.

Sequential real GDP growth of 3.5% was higher than the 3.3% average growth for Q3 in pre-Covid years, Samiran Chakraborty, chief economist for India at Citi, wrote in a note.

It “confirms our view that growth momentum remains close to pre-Covid levels,” Chakraborty said.

Services outpacing manufacturing activity and investment leading consumption remain the dominant narrative, say QuantEco Research economists.

Some segments, notably private consumption and manufacturing, showed weakness even after factoring in data revisions.

Private consumption rose by only 2.1% year-on-year in the third quarter, a sharp decline from growth of 8.8% in the second quarter.

Without the revisions, private consumption growth would have been 6%, said V. Anantha Nageswaran, India’s chief economic adviser.

Private consumption growth between December 2019 and 2022 was 14.8%, compared to 15.2% growth between September 2019 and 2022, HSBC’s Bhandari stressed.

Among the major sectors, manufacturing shrank 1.1% in the third quarter, following a contraction of 3.6% in the previous three months. The sector would have grown 3.8% in the third quarter without a data revision, Nageswaran said.

However, the weakness in manufacturing activity is also reflected in employment data. “GDP data reflects continued weakness in manufacturing activity and strong momentum in construction activity, in line with trends in employment data,” said Citi’s Chakraborty.

Most economists don’t see the GDP data leading the central bank away from another 25 basis point interest rate hike in April, even though at least two members of India’s Monetary Policy Committee (MPC) have argued that weak growth deserves a pause.

The GDP growth rate is broadly in line with the Reserve Bank of India’s estimates and the central bank’s projections are unlikely to change materially, said Rahul Bajoria, chief economist for India at Barclays.

“After a series of aggressive minutes and the inflation overrun in January, we think the balance of risks has tipped to another hike. We expect a 25 basis point increase in April with continued dissent in the MPC.”

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