Q3 GDP growth to be below 5%, but better than Q2, say economists

Govt spending would be a key driver of mild improvement in GDP growth, says ICRA

The downturn in the economy is not going to reverse anytime soon, and the growth data for the quarter ended December (Q3) would reflect the continuing slackening, economists expect. None of the economists surveyed by Business Standard thinks that gross domestic product (GDP) grew by more than 5 per cent in Q3 of the financial year 2019-20 (FY20).

But some indicators showed better growth, and Q3 would show a higher GDP growth number than Q2, they said. The data, to some extent, corroborates this. Also, no one expects economic growth to go beyond 5 per cent for the full year too.

The National Statistical Office will release the quarterly GDP data for Q3 and the second Advance Estimate of annual GDP for FY20 on Friday.

State Bank of India has said that only a fourth of 33 economic indicators showed acceleration in the December quarter, similar to Q2. In the March quarter of 2017-18, about three-fourths of the indicators had shown positive acceleration, its report said. As a result, SBI put the GDP growth rate in Q3 at 4.5 per cent, same as that in Q2 — a 26-quarter low.

Aditi Nayar, principal economist at ICRA said government spending would be a key driver of “mild improvement” in GDP growth in Q3.

“Raw material costs, high growth in government’s non-interest revenue expenditure, stable earnings by some banks would provide a cushion to the pace of economic growth,” she said in a note.

A quick look at seven indicators encompassing agriculture, manufacturing and services shows that at least half of them showed an improvement in performance compared to the previous quarter, suggesting a slight improvement above 4.5 per cent.

While industrial production, railway passenger and freight earnings, and electricity consumption has deteriorated, sowing and production in the farm sector has shown a big jump, consumption of diesel and petrol has shown a marginal improvement, and air traffic is on the rise. 

The National Centre for Applied Economic Research mentioned similar findings in its note, and said that while the farm sector looks up, indicators such as trade and tourist arrivals signal some green shoots in the services sector. 

The think tank expects that Q3 GDP growth will turn out to be 4.9 per cent over Q3 of 2018.

Financial services, real estate could drive up growth in Q3, but it would not be sufficient to counter the slackening investment demand and pressured manufacturing activity, CARE Ratings said in a note. It expects the farm sector to show 3.3 per cent growth in Q3, helping retain 4.5 per cent growth for the quarter.

Most economists also voiced concern on the impact on the Covid-19 outbreak, but said that it was difficult to quantify its impact on India’s economic growth at the moment.