Q3 GDP growth slower than expected at 4.4%: which sectors lagged, which outperformed; FY24 GDP growth outlook

The fall in GDP growth can be attributed to high inflation, which has had a negative impact on demand.

CP, growth
Retail inflation cooled off slightly following moderation in the consumer price index last month but it stayed above the RBI’s target.

According to data released by the National Statistical Office (NSO), India’s GDP growth slowed to a three-quarter low of 4.4% on-year in Q3FY23. This was primarily due to a 1.1% contraction in manufacturing, weaker private consumption demand, and government expenditure. The Reserve Bank of India projected real GDP growth for 2022-23 at 6.8%. The Q3FY23 growth rate declined from 6.3% in July-September and 13.2% in the April-June quarter. This reflected the impact of subdued consumption demand and exports due to rising input costs and interest rates, as the Reserve Bank of India focused on “withdrawal of accommodation”. Economic experts predicted a moderation in growth momentum ahead due to uneven economic activity during the quarter.

GDP Q3 print lower than expected

According to Manish Chowdhury, Head of Research at Stoxbox, the fall in GDP growth can be attributed to high inflation, which has had a negative impact on demand. Although some of the moderation in growth may be due to the base effect, the series of hikes by the RBI in the previous year is also affecting the economy. The government is still projecting a 7% growth rate for FY23, but this may be difficult to achieve due to further RBI hikes, tightening global financial conditions, and slowing external demand.

In contrast to the first and second quarters of FY23, the 3QFY23 growth was mainly supported by capital formation as consumption, both private and government, collapsed, said Nikhil Gupta, Chief Economist of MOFSL Group. Furthermore, the second advance estimates predict that the FY23 real GDP growth will be around 7%, indicating that the fourth quarter of FY23 is expected to grow by 5.1% YoY, which is highly unlikely, he added.

Sectoral impact on GDP growth

The 4.6% growth in Q3 GVA was mainly attributed to a decrease in Services, which could be a result of the normalization following the reopening boom in the previous two quarters post-pandemic. Specifically, trade, hotels & transport experienced the greatest reduction (9.7% compared to the previous 15.6%). Industrial growth slightly improved, as Construction and Utilities experienced a significant boost while Manufacturing was less of a drag. The Agri sector demonstrated resilience. Despite strong high frequency data, private consumption growth was weaker than expected and government consumption also decreased, stated Madhavi Arora, Lead – Economist, Emkay Global Financial Services.

The manufacturing sector, which had previously been a significant contributor to GDP growth, has experienced a major reduction due to a general decline in demand. Despite relatively strong performance by the agriculture sector, it has not been enough to support overall growth rates, said Jyoti Prakash Gadia, the Managing Director of Resurgent India.

GDP growth outlook

Going ahead, even as recovery in domestic economic activity is yet not broad-based, protracted global drags in the form of geopolitical uncertainty, still-elevated prices, El Nino-led risk to agri output, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output. This will put pressure on the domestic growth story, which still lacks the next lever of secular growth, said Madhavi Arora, Emkay. “We maintain our 7% GDP growth forecast for FY23, but see growth slowing to 5.7% in FY24E,” she added.

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First published on: 01-03-2023 at 09:53 IST
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