India GDP Q1 2022

India: Economy records slowest increase since Q1 2021 in Q1 2022

GDP growth lost momentum, falling to 4.1% year on year in the first quarter, from 5.4% in the fourth quarter of last year. Q1’s reading marked the slowest reading in a year. The deceleration was due to a base effect, as in seasonally adjusted quarter-on-quarter terms growth was nearly unchanged. The growth figure meant that, in FY 2021 as a whole, the economy grew 8.7%.

Private consumption growth fell to 1.8% in Q1, marking the weakest expansion since Q4 2020 (Q4 2021: +7.4% yoy). Consumer spending was likely hit by the third Covid-19 wave that ravaged the country earlier in the quarter, as well as higher inflation. Government spending sped up to a 4.8% increase in Q1 (Q4 2021: +3.0% yoy), while fixed investment growth improved to 5.1% in Q1, from the 2.1% increase recorded in the previous quarter.

Exports of goods and services growth fell to 16.9% in Q1, marking the worst result since Q1 2021 (Q4 2021: +23.1% yoy). In addition, imports of goods and services growth moderated to 18.0% in Q1 (Q4 2021: +33.6% yoy), marking the lowest reading in a year.

Commenting on India’s GDP outlook, analysts at Nomura noted:

“The steady dismantling of Covid restrictions and the return of demand for contact-intensive services should remain as the dominant growth drivers in the next few quarters. In particular, we expect this materialise in the ‘Trade, Hotels, Transport & Communication’ sector—which remains 5.8 percentage points below pre-pandemic levels and accounts for [around] 18% of GDP. In addition, the lagged effects of easy financial conditions and the government’s focus on capex should be conducive for the construction sector. A pick-up in real bank credit (and deposit) growth, led by working capital needs and higher retail lending should bode well for financial services. […] There are some risks from the supply-side, such as the ongoing coal crisis and power crunch, which may compel firms to either curb production or find more expensive sources of power (i.e., diesel generators).”

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