GDP growth could be around 4% in the fourth quarter, according to the new report

With GDP growth just 4% for the fourth quarter, a rating agency report expects final full-year growth figures to be lower than the second flash estimate of 7%. Due to the base effect, the economy grew 13.2% in the first quarter and 6.3% in the second quarter and well below the consensus expectation of 4.4% in the third quarter. To end the full fiscal year with growth of 7%, GDP should increase by at least 4.1%.

India Ratings analyst Paras Jasrai said in a report that the agency expects Q4 GDP to come in at around 4%, which would mean GDP growth for FY23 could be below 7% , but did not quantify this.

In its second advance estimate, the National Bureau of Statistics kept full-year GDP growth at 7%, accounting for growth of 5.1%. However, the agency sees many downside risks to this estimate, such as: B. the normalization of the pent-up demand that had boosted growth; Exports, previously buoyant, face headwinds from the global slowdown and credit growth faces tighter financing conditions.

Continued elevated temperatures in February in the north have raised concerns about wheat production.

In addition, the Met department has warned of the plausibility of severe heatwaves from March through May. This may not only hurt agricultural output, which is expected to grow 4.3% in the fourth quarter, but also keep inflation high, which may impact rural demand, which has been under pressure since the pandemic, Jasrai said .

Growth eased to a three-quarter low of 4.4% in Q3 versus the consensus forecast of 5.1%, dragged down by weak manufacturing and exports, among others.

Gross value added (GVA), ie the value of production, increased by 4.6% in the third quarter. The difference between GVA and GDP are indirect taxes without subsidies.

Although GDP growth is typically higher than GVA growth, net taxes in Q3 were at a seven-quarter low of 1.4% due to higher subsidies, and as a result GVA growth was higher than GDP growth in Q3 .

As post-pandemic base effects have made growth comparisons difficult, a better way to analyze the numbers is to compare them to pre-pandemic (Q3 FY20) to see recovery. Thus, the cumulative annual growth in Q3FY20-Q3FY23 was 3.7%, which is significantly lower than the comparative figure of 5.4% in Q3FY17-Q3FY20, according to the report.

Growth expectations are further muddled by the fall in merchandise exports, which fell 6.6% to $32.91 billion in January. This was the second consecutive month of contraction, reflecting anemic manufacturing activity.

Like exports, imports of goods fell 3.6% to $50.66 billion in January due to falling commodity prices. That was the sharpest drop in 25 months.

On the bright side, the services trade surplus nearly doubled to $16.48 billion in January, from $8.39 billion a year earlier. As a result, the overall trade deficit improved from $8.95 billion in January 2022 to $1.26 billion in January, equivalent to $6.65 billion in December 2022.

Another downside risk is the low level of liquidity in the banking system after it has run a huge surplus since the pandemic began. Liquidity in the banking system slowed to a four-month low of 0.43% of net demand and forward liabilities in January from 0.53% in December 2022 on robust credit demand in January. Source: Economic Times

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