Asian Markets

India's economy grows 8.4% y/y in Sept-qtr on high consumer spending - govt

6 minute read

Customers buy vegetables from a stall at a market in Ahmedabad, India, January 12, 2016. REUTERS/Amit Dave/File Photo

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BENGALURU, Nov 30 (Reuters) - India's economic recovery strengthened in the July-September quarter on stronger consumer spending, though the emergence of the Omicron coronavirus variant has raised fears for the future.

Gross domestic product (INGDPQ=ECI) expanded 8.4% from a year earlier, the fastest pace among major economies, statistics ministry data showed on Tuesday. That compared with a revised 7.4% contraction during the same period last year when the economy struggled under pandemic restrictions. read more

The reading was in line with the 8.4% growth predicted by economists in a Reuters poll and compared with 20.1% year-on-year growth during the previous quarter.

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COMMENTARY

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"Growth was a shade better than expected ... Reopening gains, pent-up demand, better farm output, higher public spending, and service sector restart have been crucial sources of support in the quarter.

"We maintain our full-year growth forecast at 9.5%, with an eye on the evolving situation with the new (COVID-19) variant.

"With regard to policy implications, besides maintaining its growth projection, the central bank is likely to underscore its preference to be data-dependent with regard to policy direction, even as the likelihood of a measured increase in the reverse repo rate in December remains in place."

NISH BHATT, FOUNDER & CEO, MILLWOOD KANE INTERNATIONAL, MUMBAI

"The Q2 GDP data at 8.4% is in line with most estimates, this pegs the H1FY22 growth at 13.7%. The recovery has been broad-based with most components contributing to growth.

"The data will have a positive bearing on the Reserve Bank of India's monetary policy committee meeting next week. The low interest, excess liquidity policy is paying good results.

"Going forward, the way countries across the globe handle the new variant of the pandemic, rising inflation, and movement of crude price will have an impact on the growth rate across the globe."

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

"Economic activity gained traction in Q2, supported by the decline of infections, concomitant easing of restrictions and a pick-up in the pace of vaccination. Service sector grew at a healthy pace, likely helped by contact-intensive services. Higher public spending boosted growth and private consumption, benefited from reopening of the economy.

"Going ahead, high commodity prices and potential supply side constraints are key downside risks to the outlook. Even as vaccination is progressing well, more clarity on the new variant will be required. As such, the policy is likely to remain steady and supportive amid still negative output gap."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"Improving mobility and lower COVID-19 risk perception has supported growth in services during the quarter while supply issues are probably holding back manufacturing growth.

"Looking ahead, the new COVID-19 variant has sown doubts about the durability of services and manufacturing pace in the coming quarters."

VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI

"GDP growth of 8.4% Y/Y in Q2 turned out to be close to our expectation. The deceleration in annualised growth print is not surprising as it is on account of fading of statistical base effect. Sequentially, GDP expanded by a robust 10.4% Q/Q.

"Going forward, we expect the combination of further unlocking as well as a step-up in vaccination coverage to continue supporting sequential expansion, which would also benefit from festival-related demand, revenge spending, and pent-up demand.

"As such, we continue to expect FY22 GDP growth to come at 10%, albeit with mild downside risk. Spill over risks from the global energy crisis and uncertainty with respect to new virus mutations (spread of Omicron) and its potential economic impact needs to be actively assessed."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"The real GDP growth in Q2 at 8.4% has been slightly better than consensus but in line with our expectations. While services was a drag in Q1, with improved traction for high-contact activities, this segment has done relatively better in Q2.

"We expect India to clock 9.5%-10% growth in FY22 ... With growth revival and sticky core inflation, we expect the Reserve Bank of India to undertake phased withdrawal of liquidity and start raising the policy rates soon."

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

"Data affirms that the economy is on continuous mend and will likely be back to pre-pandemic levels before end-FY22.

"We reckon that the nascent recovery ahead may still be partly led by capital and profits and may have traces of a scarred and segmented labour market (as seen by slowing rural demand) and sub-optimal effective fiscal policy stimulus.

"However, exogenous demand drivers in the form of exports and sustained government capex will be needed to create a growth bridge till private investment and consumption recover optimally."

RAJANI SINHA, CHIEF ECONOMIST AND NATIONAL DIRECTOR - RESEARCH, KNIGHT FRANK INDIA, MUMBAI

"The improvement in GDP growth in Q2 is on expected lines. With increased vaccination and economy moving back to normalcy, most high frequency economic indicators have bounced back above pre-COVID-19 levels. Corporate performance as reflected by quarterly results has also been showing healthy improvement in the economy.

"While consumption has recorded an improvement, a more broad-based consumption recovery would be critical for a sustainable and inclusive growth.

"The emergence of the new COVID-19 variant has infused uncertainty in the system. If this uncertainty lingers or aggravates, it would adversely impact business and consumer sentiments, with repercussions on the economic growth."

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

"The GDP growth for Q2 at 8.4% confirms that the economy gained traction in the second quarter. On the supply side, agriculture growth provided support, along with a pick-up in service sector growth at 10.2% as contact-intensive services improved along with financial and real estate sectors.

"On the demand side, investment growth provided support. The momentum in GDP growth has moved to the positive in the second quarter compared to a contraction in Q1.

"We expect full year GDP growth at 9.5% in FY22. That said, we need to watch out for any risks from the Omicron COVID variant and any escalation in supply disruptions due to stricter lockdowns across the globe."

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"The GDP growth for Q2 came a tad lower than our estimates, led by disappointment in recovery of industrial sector, mainly manufacturing. Impressive momentum of vaccination, releasing of the pent up demand mainly in services sector, nascent uptick in private investment appetite and accelerated momentum of government spending in H2FY22 will remain supportive hereon, even as elevated inflation and weak rural sentiments are emerging as risks on the horizon.

"To add to this, we have an unknown in the form of the new COVID-19 variant, Omicron. We expect FY22 GDP growth at 10% with a marginal downside, assuming we see no severe COVID-19 wave."

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Reporting by Rama Venkat, Shivani Singh, Vishwadha Chander, Anuron Kumar Mitra in Bengaluru, and Manoj Kumar in New Delhi; Editing by Vinay Dwivedi

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