GDP growth rate likely to decline to 7.1% in Q1, say SBI economists

The economists said the growth in gross value added (GVA) will fall below 7 per cent to 6.7-6.8 per cent for the April-June period this year when compared to the year-ago period

Economists at the country's largest lender SBI on Monday joined other watchers forecasting a slip in the economic growth and estimated India's real GDP growth to come at 7.1 per cent for the June quarter.

The economists said the growth in gross value added (GVA) will fall below 7 per cent to 6.7-6.8 per cent for the April-June period this fiscal when compared to the year-ago period.

"As per our 'Nowcasting Model', the forecasted GDP growth for Q1 FY25 would be 7.0-7.1 per cent, and GVA is at 6.7-6.8 per cent with a downward bias," the economists said.

It can be noted that the real GDP growth had come at 7.8 per cent in the June quarter last year and the preceding March quarter. A slew of analysts have been pointing to a moderation in economic activity in the June quarter, mainly driven by softer manufacturing and lower government spending due to the general elections.

The report also said that given the uncertain global growth outlook and the softening inflation, there is a space for monetary policy easing.

The SBI economists said its growth estimates are based on 41 lead indicators, and pointed to a moderation in sales growth and an inching up in staffing costs for manufacturing companies.

"Against this backdrop, profit margins have declined, and this will pull down manufacturing growth," it added.

If one were to exclude the banking, finance and insurance companies, corporates reported only 5 per cent revenue growth and a degrowth of 1 per cent in operating profits in Q1 FY25, it said.

SBI economists have, however, retained their 7.5 per cent growth estimate for the fiscal year 2024-25, which is higher than the 7.2 per cent made by the RBI.

The report said the global economic outlook remains uncertain, and the persistent geopolitical tensions, rekindled fears of a potential recession on signs of weaker than expected labour market outcomes in key economies and financial market volatility in response to monetary policy divergence cast a shadow on prospects.

On the positive side for India, the South West monsoon picked up from early July, closing the deficit, it said, noting that as of August 25, the cumulative rainfall was 5 per cent above the LPA (long period average) against 7 per cent below the LPA during the same period last year.