Indian economy grows below market expectations in Q3 FY2019, growth likely to remain weak in Q4

Indian economic growth in the third quarter fiscal 2019 came in below market expectations. On a year-on-year basis, the economy grew 6.6 percent. As anticipated, growth in private consumption eased while net exports continued to weigh in on growth.

Net exports dragged on growth in the quarter, although less severely than in the second quarter of fiscal 2019. Net exports negatively contributed 0.6 percentage points from India’s overall GDP growth. Private consumption decelerated to 8.4 percent year-on-year from 9.8 percent in the prior quarter. Its contribution to the overall GDP eased to 4.9 percentage points. Domestic demand also eased to 6.9 percent year-on-year, the weakest since the quarter ending March 2016.

Government spending also decelerated in the quarter, rising 6.5 percent year-on-year from 10.8 percent prior. Nevertheless, investment spending affirmed by 10.6 percent year-on-year, positively contributing 3.4 percentage points to headline growth.

On the production side, gross value added based growth eased further to 6.3 percent year-on-year. This was mainly due to deceleration in agriculture output, followed by services. Solid industrial growth supported overall growth, led largely by a rise in mining and quarrying as well as construction.

Today’s print highlights the soft growth momentum in Indian economy. According to an ANZ research report, the economic growth is likely to stay on the softer side in the fourth quarter FY2019, bringing the full year print to 7 percent in this fiscal year.

“Underlining the need to revive private consumption as well as push investment spending further, we expect the RBI to cut the policy repo rate by 25bps to 6.00 percent in its April meeting. We expect the central bank to change its stance to “accommodative” from ”neutral”, given the current mix of slow growth and low inflation”, added ANZ.