Economic slowdown: India’s Q2 GDP to grow only by 4.2 percent, reveals SBI

The Gross Domestic Product (GDP) growth for second quarter may come down further to 4.2 percent due to low automobile sales, deceleration in air traffic movements, the stagnancy of core sector growth and dilapidated investment in construction and infrastructure, and the growth forecast for FY20 is now projected to 5 percent from 6.1 percent earlier, said an SBI report.

Economic slowdown

State Bank of India (SBI) projection now goes in alignment with all other global agencies such as the ADB, World Bank, OECD, RBI and the IMF in downgrading India’s FY20 growth rates.

“Based on our composite leading indicator that suggests the GDP growth to slow down further from 5.0 per cent in Q1 of FY20 to 4.2 per cent on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure”, revealed the bank in a report.

“Our 33 high frequency leading indicators reveal an acceleration rate which was 65 per cent in Q1 FY19 declined sharply to 27 per cent in Q2 FY20. Besides that, Skymet also reported that the country as a whole received 110 per cent of the long period average (LPA) of 89 cm of rainfall during the four-month-long southwest monsoon period, making it to the above normal category, said SBI said.

India’s GDP was already reported at 5 percent, a 6 year low graph in Q1.

“Among meteorological divisions, Central India and Southern Peninsula received the maximum rainfall of 129 per cent and 116 per cent of their LPA, respectively. Excess Monsoon rains and the floods caused by them had affected the Kharif crops in many states, including Madhya Pradesh, Maharashtra, Gujarat, Karnataka and Punjab.

“While 40 to 50 per cent soyabean crop has been hit in Madhya Pradesh, which is the biggest producer of the oilseed, 30 to 40 per cent of the groundnut and up to 30 per cent of cotton crops have been affected in Gujarat.

“As these states are major agrarian states, so this could have a negative impact on the agricultural growth. Considering all these domestic parameters along with the global downturn, we now foresee a GDP growth at 5 per cent in the current fiscal,” the report said.

“We expect Q2GDP growth at 4.2 per cent. Our acceleration rate for 33 leading indicators at 85 per cent in October 2018 is down to just 17 per cent in September 2019, with such decline gaining traction from March 2019.

Even IIP growth number for September 2019 was 4.3 per cent, which is quite alarming. We are revising our GDP forecast for FY20 to 5 per cent from 6.1 per cent earlier,” the SBI Ecowrap said.

“We expect the growth rate to pick up pace in FY21 to 6.2 per cent. We also expect revisions to the GDP data as in the past, but that is likely in February 2020 as is the custom. In FY17, Q1 GDP figure was revised upwards from 7.1 per cent in every revision and finally settled at 9.2 per cent”, the bank said.

“We, however, believe this growth rate in FY20 should be looked through the prism of synchronised global slowdown (countries have witnessed 22-716 basis point decline between June 2018 and June 2019, and India cannot be isolated!).

“India is also significantly lower in Economic Uncertainty Index when compared globally. We also believe that Moody’s change in outlook from stable to negative will not have any significant impact as rating actions are always a laggard indicator and the markets this time have categorically given a thumbs down to such indicators,” it said.

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