3QFY19 GDP growth in line with expectations
Low inflation and weak growth in 2HFY19 to provide room for a rate cut
28 February 2019
The Economy Observer
Real GDP growth decelerated to a six-quarter-low of 6.6% in 3QFY19 – marginally better than our expectation of 6.4%,
but slightly below consensus of 6.7%. Government consumption expenditure (GCE) and private consumption
expenditure (PCE) grew slowly in 3QFY19, while investments (GCF) continued growing strongly in the quarter.
Real GVA grew by 6.3% (our estimate/consensus: 6.2%/6.5%), lower than +6.8% in the previous quarter, on account of
deceleration in agriculture growth. Non-agri-GVA growth remained unchanged from the previous quarter at 7.2%.
Investments grew 10.5% in the quarter on account of double-digit growth in the private sector (households + corporate)
capex; government capex declined sharply. Implied domestic savings declined to 27.0% of GDP in 9MFY19 from 27.5% in
the year ago period.
Government revised down its full-year FY19 GDP growth projection from 7.2% to 7% – exactly in line with our forecast.
This implies that it expects GDP growth at 6.5% in 4QFY19. We continue believing that a rate cut is highly likely in the
April policy meeting. With inflation at ~2% and growth at sub-7% in 2HFY19, the clout for a 50bp cut could rise.
I. GDP growth at six-quarter low…
II. …and GVA growth decelerates to 6.3%
Real GDP growth slows down to 6.6%…:
Real GDP growth slowed down sharply
to a six-quarter low of 6.6% YoY in 3QFY19 from 7% in 2QFY19. The number is
slightly better than our expectation of 6.4%, but marginally lower than market
consensus of 6.7%. Slower growth can be attributed to a deceleration in
consumption; investments continued growing strongly in the quarter.
…as consumption growth decelerates:
Growth in GCE decelerated sharply to
6.5% in 3QFY19 from 10.8% in 2Q – this alone dragged down growth in 3Q by
~60bp compared to the previous quarter
While growth in PCE slowed
down to 8.4% from 9.8% in 2QFY19, GCF grew in double-digits (+10.5%) in the
quarter. Net imports narrowed in the quarter, adding ~120bp to overall GDP
growth in 3Q compared to the previous quarter.
GVA growth slows to 6.3% YoY…:
Growth in real GVA decelerated to 6.3% in
3QFY19 from 6.8% in the preceding quarter
marginally higher than
our estimate of 6.2%, but below consensus of 6.5%. Slower growth was largely
on account of agriculture; growth in non-agri GVA remained unchanged from
the previous quarter at 7.2%.
…as agriculture growth decelerates sharply:
Agriculture growth decelerated to
2.7% in 3QFY19 from 4.2% in 2Q – this was the slowest pace of growth in 11
quarters. Industrial growth, however, improved to 7.1% from 6.7% in 2Q, largely
on account of an improvement in construction and mining activity. While
construction grew by 9.6% in 3Q – the fastest pace in at least 27 quarters,
mining output rose by 1.3% after declining by 2.1% in the previous quarter.
Manufacturing GVA growth slipped to a six-quarter low of 6.7%.
Growth in services slowed down to 7.2% from 7.4% in 2Q and the average of
7.7% in the last four quarters. Within services, growth in community social &
personal services eased sharply to 7.6% from 8.7% in 2Q, reflecting slower
growth in government expenditure.
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
– Research Analyst
(Rahul.Agrawal@motilaloswal.com); +91 22 6129 1559
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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