Real GDP growth weakens in 3QFY20
Could moderate further to ~4.5% this quarter
28 February 2020
The Economy Observer
Real GVA/GDP grew 4.5%/4.7% YoY in 3QFY20, higher than our estimate. Nominal GDP growth stood at 7.7% compared
to 6.4% in 2QFY20 and 11.4% in the year-ago period.
While the CSO revised GDP/GVA growth to 5.6%/5.4% from 5.0%/4.9% for 1QFY20, the numbers for 2QFY20 were
revised upward to 5.1%/4.8% from 4.5%/4.3%. This means that while majority of market participants were expecting an
improvement in GDP growth in 3QFY20, revisions actually imply that growth has fallen, exactly in line with our
expectation of weaker growth during the quarter.
Weakness in real GDP growth was entirely led by investments, as consumption (largely driven by government spending)
and net exports grew decently during the quarter. In fact, GDP growth excluding government consumption expenditure
was at only 3.9% for 3QFY20. Further, external trade did well in 3QFY20 as the decline in imports was much steeper
than exports, similar to that in the past two quarters.
Weakness in GVA growth was primarily on account of a slump in industrial activity, as both agriculture and services
sector growth accelerated in 3QFY20.
Moreover, recently released fiscal deficit data showed that government spending declined 6.4% YoY in Jan’20. We
expect fiscal spending to decline further in the coming two months of FY20, leading to its sharp decline in 4QFY20.
Considering fiscal spending was the primary supporter of growth all this while, we expect real GDP to weaken further in
the last quarter of the year and come in at ~4.5%. Interestingly, the CSO has retained its full-year FY20 growth forecast
at 5%, indicating expectation of 4.7% growth in 4QFY20, similar to 3QFY20.
I. GDP growth at multi-year low in 3QFY20
Real GDP weakens in 3QFY20…:
Real GDP growth decelerated to 4.7% YoY in
3QFY20 from 5.1% in 2QFY20 and 5.6% in 3QFY19. The deceleration was entirely
led by a second consecutive decline in investment, as consumption (supported
by fiscal spending) and net exports exhibited decent growth during the quarter
3QFY20 growth was exactly in line with consensus but higher than
our estimate of 4.1%.
…led by second decline in investment in 23 quarters:
Gross capital formation
(GCF) declined 4.5% YoY in 3QFY20, higher than the decline of 3.3% in the
previous quarter and versus multi-year-high growth of 11.5% YoY in 3QFY19.
The drop in investment in 3QFY20 is steeper than our estimate of a decline of
Additionally, faster decline in imports compared to exports
during the quarter led to modest contribution to GDP growth by net exports in
Consumption growth was decent during the quarter:
consumption growth did decelerate in 3QFY20 but at a slower pace. It grew at
6.7% YoY in 3QFY20 versus 7.0% in 2QFY20 and 3QFY19
deceleration was led by slower growth of 11.8% YoY (v/s 13.2% in 2QFY20) in
government consumption expenditure, as private expenditure grew faster at
5.9% compared to 5.6% in 2QFY20. Nevertheless, still strong growth in fiscal
spending by the government held up overall consumption growth. In fact, GDP
excluding government consumption expenditure was at only 3.9% in 3QFY20.
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
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