India GDP Q3 2020

India: GDP rebounds in October–December

The economy grew 0.4% year-on-year in the fourth quarter of CY 2020 (FY Q3 2020), slightly undershooting analysts’ expectations of a 0.5% increase, after contracting 7.3% in the third quarter. The return to growth reflected looser lockdown measures, which supported a recovery in domestic activity.

On the domestic front, the improvement was predominately driven by a weaker drop in private consumption and a rebound in fixed investment compared to the previous period. Household spending dipped at a softer rate of 2.4% year-on-year in Q4, following the 11.3% contraction in Q3. Fixed investment increased 2.6% in Q4, contrasting the 6.8% decline recorded in the previous quarter. Furthermore, the drop in government spending eased to 1.1% in Q4 (Q3: -24.0% yoy).

On the external front, exports of goods and services fell at a quicker rate of 4.6% in the fourth quarter, following the third quarter’s 2.1% contraction. Meanwhile, imports of goods and services dropped at a milder rate of 4.6% in Q4 (Q3: -18.2% yoy). Consequently, the external sector contributed 0.1 percentage points to overall GDP, but this contrasted the 3.9 percentage-point contribution in the previous quarter.

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

“We expect Q1 GDP growth to remain strong, rising further to 0.7% yoy, supported by a significant acceleration in government spending. Thereafter, we expect growth momentum to slow as the pace of government spending slows after the Q1 boost, and the terms of trade impulse on higher commodity prices turns more negative. Indications are that household financial savings have also normalized much faster-than-expected after spiking during the lockdown in Q2 last year, resulting in the faster recovery pace we’ve observed in recent activity data.”

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