India: Economic growth slows in the third quarter of FY 2018
February 28, 2019
In the third quarter of fiscal year 2018—which ran from October to December—GDP grew 6.6% compared to the same quarter a year earlier. This was below the revised 7.0% expansion in the second quarter (previously reported: +7.1% year-on-year) and slightly below market analysts’ expectations of 6.7% growth.
Economic growth in Q3 was dented by a slowdown in both private and public consumption. Higher oil prices and tighter financial conditions likely caused private consumption growth to moderate to 8.4% in Q3, which was down from Q2’s 9.8% expansion. Public spending, meanwhile, increased at a slower rate of 6.5% in Q3, down from 10.8% in Q2. On the other hand, fixed investment growth accelerated to 10.6% in Q3 from 10.2% in Q2.
Exports of goods and services increased 14.6% in Q3, up from 13.9% in Q2. Import growth, meanwhile, moderated to 14.7% from 21.4%. The differing fortunes of export and import dynamics in Q3 can partially be attributed to the large currency depreciation in the lead-up to the quarter. All told, the external sector detracted 0.5 percentage points from economic growth in the third quarter of FY 2018, significantly less than the 1.7 percentage-point deduction in the second quarter.
Commenting on the ongoing slowdown, analysts at Nomura believe:
“The cyclical slowdown is likely to worsen in coming quarters. First, global growth momentum is moderating […] Second, tight financial conditions persist […] Third, political uncertainty will likely delay investment decisions in H1 2019. In the near term […] we do not believe low oil prices, a consumption-oriented budget and the Reserve Bank of India’s about-turn towards dovishness will be able to stave off a slowdown.”
Author: Edward Gardner, Economist