India: Economic growth tumbles to an over six-year low in Q2 FY 2019
In Q2 FY 2019, which ran from July to September, the economy grew 4.6% compared to the same period a year earlier, down from Q1’s 5.0% expansion and a whisker below market analysts’ expectations of 4.7% growth. It also represented the sixth consecutive moderation in economic growth and the weakest reading since Q4 FY 2012.
Fixed investment growth sunk to 1.0% in Q2 (Q1: +4.0%), marking the weakest growth since Q3 FY 2014. This slowdown was likely due to weaker bank lending growth, which moderated to a nearly three-year low, despite recent interest cuts by the Reserve Bank of India. In contrast, private consumption growth accelerated to 5.1% (Q1: +3.1%), despite falling consumer confidence, while government consumption growth surged to 15.6% (Q1: +8.9%).
On the external front, exports of goods and services decreased 0.4% in Q2, contrasting the 5.7% increase in Q1, while imports slumped 7.0% in Q2, contrasting the 4.2% increase in Q1. Overall, the external sector contributed 1.3 percentage points to economic growth in Q2, well up from the 0.1 percentage-point contribution it made in Q1.
Analysts at Nomura reflected: “The key takeaway from the [Q2] GDP data is the sharp slump in domestic demand, cushioned somewhat by government spending, contracting imports, and rather surprisingly, an uptick in consumption growth. Although weaker global growth is a common thread across economies, India’s sharper-than-expected growth slump, despite being a relatively closed economy, suggests that domestic factors have played a bigger role. […] the slowdown reflects a painful convergence of tight domestic credit conditions”.
Looking ahead, analysts at Goldman Sachs noted that they “expect sequential growth to pick up over the course of next several quarters” and “real GDP growth to accelerate from an estimated 5.3% in FY20 to 6.6% in FY21”. This optimism stems from their assessment of future external demand, looser lending conditions and stimulus from the government.