India: Economy records quickest upturn since Q2 2021 in the second quarter
GDP growth accelerated to 13.5% year on year in the second quarter, from 4.1% in the first quarter. Q2’s reading marked the best result since Q2 2021. However, the result undershot market expectations and was inflated by a base effect.
Household spending growth improved to 25.9% year on year in Q2 compared to a 1.8% expansion in Q1. Meanwhile, fixed investment growth improved to 20.1% in Q2, from the 5.1% increase logged in the previous quarter. Public spending growth was the slowest since Q1 2022, expanding 1.3% (Q1: +4.8% yoy).
On the external front, exports of goods and services increased 14.7% on an annual basis in the second quarter, which was below the first quarter’s 16.9% expansion. Conversely, imports of goods and services growth picked up to 37.2% in Q2 (Q1: +18.0% yoy).
The Q2 print suggests that the economy is continuing to rebound from the Covid-19 pandemic, setting the stage for a growth rate above the pre-pandemic average this fiscal year. However, the reading was flattered by a base effect. Compared to the same quarter in 2019—before the Covid-19 crisis—GDP was only up 3.8% in Q2 compared to 6.7% in Q1.
Analysts at Nomura expect GDP to slow sequentially in Q3:
“First, the [Covid-19] reopening-driven catch-up is nearly complete and is unlikely to sustain for long […]. Second, deteriorating global growth prospects are likely to spill over to India. […] Third, high inflation could adversely impact real incomes and weigh on rural consumption where the savings buffers are lower. And finally, although domestic financial conditions are not restrictive, they have become less accommodative, and hence should moderate the pace of growth in interest rate-sensitive sectors.”