Q3 pain in store for GDP growth

The current financial year is set to record the worst economic expansion in its third quarter, as economists do not see the GDP growing beyond 6.7 per cent against the backdrop of a near-flat growth in the industrial production numbers.

The first quarter of 2011-12 saw the economy growing by 7.7 per cent, while the figure was 6.9 per cent in the second quarter, thus delivering a 7.3 per cent economic expansion in the first half. Advance estimates pegged the economic growth at 6.9 per cent for the entire FY12.

While the numbers pegged by various economists differ quite a lot, most of them forecast it to be somewhere in the 6.4 to 6.7 per cent range. But, a few of them project the GDP growth to fall as low as 6.2 to 6.5 per cent in the third quarter. Now, even at 6.7 per cent, the economic growth would be a ten-quarter low. The third-quarter GDP figures will be out this Wednesday. Assuming the GDP to grow by 6.7 per cent in the third quarter, economic expansion has to be 7.4 per cent in the fourth quarter so as to deliver a 6.9 per cent growth for the entire 2011-12, as calculated in advance estimates.

Wind back to 2008-09, and the GDP growth that year fell to sub-6 per cent in the third quarter — at 5.8 per cent. It logged the worst number for a three-month period in the recent times. However, that might not be the case this time, but experts surely forecast a low growth.

Industrial production grew just 0.93 per cent in the third quarter, on the back of a negative growth in mining to the extent of 4.6 per cent and subdued growth in manufacturing at 0.82 per cent. The saving grace was electricity, which grew by a robust 9.5 per cent.

Industry grew 2.72 per cent in the second quarter ended September 2011.

“It is not just industry, but I also expect services to show low growth,” says Arun Singh, senior economist at D&B (Dun and Bradstreet), who expects the GDP to grow between 6.5 and 6.7 per cent in the third quarter.

According to him, as industry growth has been low for more than two quarters now, it will reflect in the services growth too. “Industry has a lag of about 1-2 quarters on services”, he notes.

Madan Sabnavis, chief economist, CARE Ratings, pegs the Q3 GDP growth at 6.6 per cent. “Agriculture is expected to grow at 2-2.5 per cent, with services at 9-9.5 per cent.”

Yes Bank chief economist Shubhada Rao projects the GDP to expand by 6.4 per cent. “Our headline GDP for Q3 is at 6.4 per cent,” she says. “Clearly, the drag has been on account of mining and manufacturing.”

However, Rao says that with the third quarter, the growth is likely to have bottomed out.

Financial services firm KASSA’s director Siddharth Shankar expects the economic growth in the third quarter to fall to 6.2-6.5 per cent range. “For the Quarter 3, I expect GDP growth to fall further from the 6.9 per cent (in the second quarter) to touch 6.2 per cent to 6.5 per cent,” he says.

Even consumption levels have fallen along with investments, which is a matter of concern. “As RBI moves towards monetary easing from the next fiscal, investment is expected to improve,” says Singh of D&B.