Sharp decline for India in second quarter GDP growth
NEW DELHI - At 5.7%, GDP growth in India slowed for the April-June quarter amid a sharp decline in manufacturing activity. On a sequential basis, growth moderated to 1% q/q (vs 1.8% in the January-March quarter). The momentum was dampened by net exports (which contributed -2.4ppt to GDP) and weak investments (0.5ppt to GDP).
Consumption growth remained steady as moderation in private consumption was offset by healthy growth in Government demand.
On the production side, the manufacturing sector recorded its weakest growth in nearly two years.
Commenting on th results, ANZ Bank says it believes the slowdown was a combination of sub-par capacity utilisation in the sector and destocking by producers ahead of GST implementation in July.
On the other hand, the services sector recorded improvement led by expansion in the “trade, hotels and transport” sub-segment.
“Looking ahead, says ANZ, “we don’t anticipate a revival in investment anytime soon amid the twin balance sheet problems of an over-leveraged corporate sector and a stressed banking sector.
“Further impact will arise from scaling down of capital spending by the State Governments to accommodate farm loan waivers. Consumption will remain supported, with a normal monsoon boosting agriculture and rural demand.
“Implementation of house rent allowance under the seventh wage increase scheme from July 2017 will strengthen urban consumption.”
ANZ is revising downwards its GDP forecast for FY2018 to 6.2% from 7.3% earlier.
“The underlying growth is likely to remain moderate, mirroring the trend in core inflation,” it says. “We continue to expect the Reserve bank of India (RBI) to cut the policy repo rate by 25bps in October.” www.live.anz.com (ATI).