India: GDP growth declines in Q3 on harsher base effect
Economic growth waned in the third quarter, with GDP expanding 6.3% on an annual basis (Q2: +13.5% year on year), marginally beating market expectations.
The downturn was broad-based, with private consumption, public spending, fixed investment and export activity all weakening. Household spending growth moderated to 9.7% year-on-year in Q3 from a 25.9% expansion in Q2. Government spending dropped at the sharpest pace since Q1 2022, contracting 4.4% (Q2: +1.3% yoy). Meanwhile, fixed investment growth softened to 10.4% in Q3, from 20.1% in the previous quarter.
Exports of goods and services growth fell to 11.5% in Q3, marking the worst reading since Q1 2021 (Q2: +14.7% yoy). In addition, imports of goods and services growth moderated to 25.4% in Q3 (Q2: +37.2% yoy).
The Q3 print was deflated by a base effect: Compared with the equivalent quarter in 2019, GDP was 7.6% higher in Q3 compared to 3.8% higher in Q2. The Q3 reading means GDP has expanded 7.7% yoy so far this year, putting India on track for one of Asia’s fastest growth rates. Private consumption, fixed investment and exports all continued to grow at near or at double-digit rates.
Our panelists expect GDP growth to ease further in the coming quarters. The post-pandemic surge in consumer spending should cool, while rising interest rates should continue to dampen domestic demand. Meanwhile, export growth will be hit by a slowing global economy.
Analysts at Nomura expect GDP to slow sequentially in Q4:
“While lower inflation should help support private consumption in coming months, the lagged effects of tighter financial conditions and weak global demand will weigh on both investment and exports, while the post pandemic catchup in services is largely complete. Therefore, we expect GDP growth momentum to slowdown more sharply in coming quarters.”
Analysts at the EIU said:
“Indian growth will continue to be driven by private consumption and government investment, as exports lose momentum in the quarters ahead, alongside a slowdown in global growth.”