India: Economic growth surges in the first quarter of FY 2018
In the first quarter of FY 2018—which ran from April to June 2018—GDP grew 8.2% in year-on-year terms in Q1 FY 2018, up from 7.7% in Q4 FY 2017. The figure was above the 7.6% expansion that market analysts had expected and was the highest reading in over two years. All in all, this would suggest that the Indian economy emerged strongly from the downturn that followed the abrupt demonetization of November 2016 and the road bumps caused by the introduction of the Goods and Services Tax in July 2017.
Higher economic growth in April–June was primarily underpinned by greater consumer spending. Private consumption growth accelerated to 8.6% in April–June, up from 6.7% in January–March and the fastest expansion in two-and-a-half years. Meanwhile, government consumption increased by 7.6% in Q1, down substantially from the 16.9% expansion in Q4. Fixed investment rose 10.0%, which, although strong, was still down from 14.4% in Q4.
Exports of goods and services expanded 12.7% in Q1, significantly higher than the 3.6% growth recorded in Q4. Import growth also accelerated in Q1, rising from 10.9% in Q4 to 12.5%. The external sector consequently detracted 0.3 percentage points from economic growth in Q1, notably less than the 1.2 percentage-point deduction in Q4.
Commenting on the Q1 results and the short-term economic outlook for India, analysts at Nomura added:
“Overall, the data suggest an economy in the midst of a strong recovery in [Q1], but the key question is its sustainability. We have our doubts because higher oil prices, tighter global financial conditions and our view that the global economy is set to cyclically slowdown suggest a number of external headwinds. Moreover, we expect the government to cut capital expenditure (given budget constraints) and investment decisions to be delayed (political uncertainty ahead of elections). Therefore, we believe that growth cyclically peaked in [Q1].”