Investment in India

India - Investment

Economic growth slows in the second quarter of FY 2018

In the second quarter of fiscal year 2018—which ran from July to September—GDP grew 7.1% in year-on-year terms. This was below the 8.2% growth recorded in Q1 FY 2018, as well as market analysts’ expectations of a 7.5% expansion.

Lower economic growth in the second quarter was primarily due to a weaker annual increase in private consumption compared to the previous quarter (Q2: +7.0% year-on-year; Q1: +8.6% yoy). On the flip side, public consumption increased at an accelerated rate of 12.5% in Q2 compared to 10.0% in the previous quarter, likely due in part to the central government opening its purse strings in the run-up to next year’s general elections. Moreover, fixed investment had a solid showing, growing 12.5% in Q2, up from 10.0% in the Q1.

Export of goods and services increased a strong 13.4% in Q2, up from 12.7% in Q1. Meanwhile, import growth shot up to 25.6% in Q2, likely due to higher oil prices, which is far higher than the previous quarter’s 12.5% reading. The external sector consequently subtracted 2.4 percentage points from economic growth in the second quarter of FY 2018, significantly more than the first quarter’s 0.3 percentage-point deduction.

Commenting on the Q2 results and the short-term economic outlook for India, analysts at Nomura added:

“Overall, [the Q2 GDP reading confirmed] that the economy peaked in [Q1] and the pace of slowdown is worse than expected. In our view, the cyclical slowdown is likely to worsen in the coming quarters owing to three factors. First, global growth momentum is moderating. Second, tight financial conditions owing to the shadow banking liquidity crisis are likely to have an adverse impact on consumption discretionary demand, the commercial real estate and SME segments. Third, we expect the fiscal impulse to turn negative in H2 FY19, as the government has to balance the frontloading of expenditure in H1, alongside a depressed outlook for revenue collection.”

India GDP Forecast

FocusEconomics Consensus Forecast panelists see the economy picking up in FY 2019 and growing 7.4%, which is unchanged from last month’s forecast. In FY 2020, our panel also expects GDP to expand 7.4%.