Q2 GDP growth seen below 5% on slowdown, floods

By Rohit Vaid

New Delhi, Nov 27 (SocialNews.XYZ) General economic slowdown coupled with natural calamities such as floods have been cited by economists to have further decelerated India's second quarter GDP growth rate.

In a survey conducted by IANS, a majority of economy watchers were quick to point out that Q2FY20 growth rate will be lower than the 5 per cent rise seen in April-June quarter, especially due to the havoc caused by Monsoon rains across India.

"GDP growth is expected to soften further to 4.6-4.7 per cent after 5 per cent in 1QFY20 amid continued tightening of financial conditions, and worsening activity data," Edelweiss Securities' Economist Madhavi Arora told IANS.

"Sluggishness in consumption activity, seen for both rural and urban areas, has continued, while manufacturing and services high frequency indicators have also remained weak even as government spending has increased substantially on sequential basis."

This trend of subdued consumption, referred to as -- slowdown -- had pulled the country's GDP growth rate lower to 5 per cent in the first quarter of FY 2019-20 from 5.8 per cent in Q4 of FY 2018-19.

"Heavy rainfall in August-September 2019 along with a delayed withdrawal of the monsoon, constrained activities in the mining and construction sectors, and also contributed to a lower demand for electricity from the agricultural and household sectors," ICRA Principal Economist Aditi Nayar said.

Further, muted industrial activity reduced the demand for electricity generation.

"Various lead indicators of trade reveal a broad-based deterioration in Q2 FY2020," Nayar said.

Macro-economic growth indicators such as sales of commercial vehicles, air cargo traffic, railway revenue carrying freight and diesel consumption have shown a YoY contraction in Q2 FY2020.

Additionally, India Ratings and Research has revised its FY20 GDP growth forecast downwards to 4.7 per cent.

Consequently, its FY20 GDP growth forecast has been also been revised downwards to 5.6 per cent from an earlier estimate of 6.1 per cent.

"The new projection suggests that 2QFY20 GDP growth is likely to be 4.7 per cent. Despite favourable base effect, declining growth momentum suggests that even the 2HFY20 will now be weaker than previously forecasted and is likely to come in at 6.2 per cent," the agency said.

However, Brickwork Ratings expects the GVA growth of about 5 per cent and that for GDP to about 5.2 per cent for the second quarter.

"The main reason for the growth of GVA over 5 per cent is the base effect. It may be recalled that the second quarter GVA and GDP figures for the second quarter of 2018-19 was very low and therefore, the growth for the quarter is seen higher," Brickwork Ratings' Chief Economic Advisor M.Govinda Rao, told IANS.

"The growth performance as compared to the first quarter GVA and GDP will remain stagnant and many sectors are likely to see negative growth as compared to the first quarter."

According to Suman Chowdhury, President-Ratings at Acuit? Ratings and Research the growth trajectory is expected to remain flat in the second quarter.

"High frequency indicators highlight the continuing weak momentum in GDP growth. It will be difficult to predict the specific level but clearly it is unlikely to be very different from the previous quarter levels," Chowdhury said.

"Clearly, private consumption figures are yet to see a revival. IIP has seen negative growth in both August and September."

The National Statistical Office (NSO) is expected to release the second quarter GDP numbers on Friday, November 29.

(Rohit Vaid can be contacted at rohit.v@ians.in)

Source: IANS