Indian economic growth slows down in Q2 FY19, RBI likely to stand pat next week

The Indian economic growth came in below market projections in the third quarter (Q2 FY19). The GDP growth slowed to 7.1 percent on a year-on-year basis from 8.2 percent recorded in the prior quarter. Net exports mainly weighed on the economic growth, while private consumption also decelerated.

Mainly owing to solid import growth of 25.6 percent year-on-year, net exports negatively contributed 2.8 percentage point to the overall GDP print. This drag from net exports was the highest since the second quarter of 2012. Private consumption decelerated to 7 percent year-on-year from 8.6 percent recorded in the prior quarter.

Nevertheless, investment activity provided some offset to the slowdown by recording a rise of 12.5 percent year-on-year. Public investment is still the main driver of this performance, stated ANZ in a research report.

Meanwhile, gross value added based growth dropped to 6.9 percent year-on-year. This was mainly due to easing in manufacturing and agriculture output. Rebound in services sector also continued to be uninspiring as the improvement in public services was countered by weak momentum in financial services.

The recent run of economic data has been weak. Some coincident indicators had softened even before the emergence of issues in the non-bank financial company sector. The underlying growth momentum has therefore turned soft. There are now downside risks to the projection of 7.2 percent growth for the whole of FY2019.

“Not only do we think that the RBI will maintain the repo rate next week, there is also a possibility that the central bank will revert to a ‘neutral’ stance after having changed it to ‘calibrated tightening’ at its last review”, added ANZ.