India's economy slows sharply, adding pressure on central bank to cut rates (updated)

IDFC First Bank

29/11/2024 10:50

* 
      July-Sept GDP growth 5.4% y/y vs 6.5% in Reuters poll
    

        * 
      Manufacturing grows 2.2% y/y vs 7% rise in April-June
    

        * 
      Economists say economic growth dragged down by slower
consumption 
    

  
 (Recasts, adds analysts view on rate cut in paragraph 3-5)
    By Manoj Kumar and Shivangi  Acharya
       NEW DELHI, Nov 29 (Reuters) - India's economy slowed
much more than expected in July-September, hampered by weaker
expansions in manufacturing and consumption, which will add
pressure on the central bank to cut interest rates.      
    Gross domestic output  INGDPQ=ECI  in the world's fifth
biggest economy rose by 5.4% in July-September year-on-year,
data showed on Friday, the slowest pace in seven quarters and
well below a Reuters poll of 6.5%. In the previous quarter it
grew 6.7%.
        The gross value added (GVA), a more stable measure of
economic activity, saw a modest 5.6% growth, easing from a 6.8%
increase in the previous quarter. 
    Economists said private consumption, accounting for 60% of
GDP, and manufacturing has been hit by slower urban spending due
to rising food inflation, high borrowing costs and weak real
wage growth, despite a recovery in rural demand.
    
   BROAD-BASED SLOWDOWN
   A slowdown was visible across a number of sectors but was
most pronounced in manufacturing, where growth slowed to 2.2%
year-on-year in July-September, versus 7% growth in the previous
quarter.    
    "The manufacturing sector appears to have taken the maximum
beating," said Upasna Bhardwaj, economist at Kotak Mahindra
Bank, estimating that full-year economic growth could be around
6.2%.
    Economists say inflation, now running at around 6%, is
biting into demand for goods ranging from soaps to shampoos to
cars, particularly in urban areas.
        Private consumer spending rose 6.0% in July-September
from a year earlier, compared to a 7.4% increase in the previous
quarter. 
    Agricultural output rose 3.5% in July-September from a year
earlier due to a good monsoon, up from 2% growth in the previous
quarter.
    
        India remains among the fastest growing major economies
with government officials forecasting a potential regaining of
momentum in the second half of the fiscal year, helped by
improved rural demand after a strong monsoon and a pick-up in
government spending.
    Still, economists warned that full-year economic growth
could be much lower than the central bank's estimate of 7.2%.
    Bond yields and overnight index swap rates, seen as an
indicator of interest rates, fell after the release of the GDP
data, signalling an increased probability of an interest rate
cut in February. 
    The Reserve Bank of India (RBI) has not cut rates since May
2020.
    A few economists said the central bank may even consider a
rate cut in December.
        "Post-today's (GDP) print, there is a high probability
of an RBI rate cut in December," said Gaura Sen Gupta, economist
at Mumbai-based IDFC First Bank.
        Indian government spending in real terms rose 4.4%
year-on-year in July-September, compared to a 0.2% contraction
in the previous quarter, data showed.
    India's finance and trade ministers have called for lower
interest rates to help industries to ramp up investments and
build capacity.     
        The RBI's Monetary Policy Committee left its benchmark
repo rate  INREPO=ECI  unchanged at 6.50% last month due to
still high inflation, while tweaking its policy stance to
"neutral". 
    The MPC will announce next policy decision on Dec. 6.
      
  

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
India GDP growth lowest in seven Quarters in Q2 2024-25    https://reut.rs/49eKMiJ
Growth in key components of expenditure    https://reut.rs/3CStoV5
Key sectors adding to India's growth    https://reut.rs/3Vg6IV3
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Manoj Kumar and Aftab Ahmed; Editing by Susan
Fenton)
 ((manoj.kumar@thomsonreuters.com; +919810286200;
Twitter:@manojgulnar;))