India Agriculture (ann. var. %)

Economy records slowest increase since Q1 2022 in Q4 2022

Activity softened in the fourth quarter, with GDP expanding 4.4% year on year (Q3: +6.3% yoy). Q4’s reading marked the softest growth since Q1 and undershot market expectations. The Q4 print was dented by a base effect: Compared with the equivalent quarter in 2019, GDP was 11.5% higher in Q4 compared to 9.3% higher in Q3. The Q4 reading means GDP has expanded 7.7% yoy so far this year, putting India on track for one of Asia’s fastest growth rates.

The downturn was driven by weakening growth in private consumption, fixed investment and exports. Private consumption increased 2.1% in the fourth quarter, which was below the third quarter’s 8.8% expansion. Fixed investment growth moderated to 8.3% in Q4, compared to 9.7% recorded in the previous quarter. Exports of goods and services growth fell to 11.3% in Q4, marking the worst reading since Q1 2021 (Q3: +12.3% yoy). Meanwhile, imports of goods and services growth moderated to 10.9% in Q4 (Q3: +25.9% yoy).

More positively, government consumption dropped at a softer pace of 0.8% in Q4 (Q3: -4.1% yoy).

Our panelists expect GDP growth to remain roughly stable in Q1 2023 and grow thereafter. The Reserve Bank of India appears unlikely to hike any further, and inflation is likely to trend downward. These developments bode well for domestic demand.

Analysts at ING were optimistic about the outlook:

“India is well placed to outperform many of its Asian peers in the short term, given its very low trade dependency on China compared to the rest of the region. It may also be capitalising on some of China’s current problems, offering an alternative destination for foreign investment as multinational firms look to spread their supply chain risks while remaining in the region.”

Analysts at the EIU commented:

“The slower pace of GDP growth reflects seasonality and base effects rather than a palpable loss of growth momentum; it ties in with our expectation of GDP growth averaging 3.5-4% in the second half of 2022/23. We expect pent-up consumer demand to dissipate gradually in 2023/24.”