Q3 GDP projection: It's moderate growth or mild fall, say economists

After the economy contracted in two consecutive quarters of this fiscal year, all eyes are on the gross domestic product (GDP) numbers for the third quarter of the year. Economists are divided whether recession has spilled over to the third quarter or if the economy would yield growth. Their projections range from a GDP decline of 1 per cent to a growth rate of 0.7 per cent during October-December.

The GDP numbers for the third quarter are expected to be released next week.

ICRA, which came up with a report on the numbers on Friday, has estimated growth at 0.7 per cent. The economy had declined 23.9 per cent in the first quarter and 7.5 per cent in the second.

“The economy would benefit from a pickup in private consumption and government spending. The growth forecast for Q3, while mild and uneven, is welcome because it signifies that the economy has exited the pandemic-induced recession after two tumultuous quarters,” said Aditi Nayar, principal economist, ICRA.

She said almost all the non-agricultural lead indicators ICRA tracked recorded a continued, albeit uneven, improvement in volume terms in the third quarter.

“This pickup benefited from the continued unlocking of the economy, uptick in consumption during the festive season, as well as higher Central government spending. Moreover, most of the tracked indicators rebounded to growth on a YoY basis in that quarter, although this was on the low base of Q3,” she said.

The outliers that continued to contract in Q3 included sectors such as aviation, reiterating that the contact-intensive portion of the economy will take longer to recover, Nayar said.

ICRA noted the index of industrial production recorded a sedate 1 per cent rise in the quarter while rising raw material prices contributed to lower margins in some sectors.

“The profitability for a large portion of the formal listed space remained healthy, benefiting from the cost-cutting measures that had been undertaken at the peak of the pandemic as well as rising volumes,” Nayar said, adding the formal part of the Indian economy had shrugged off the pandemic blues and was gaining traction at the cost of the smaller and less formal segment. This is hastening formalisation in the economy and contributing to consolidation in favour of larger and more reputed players in certain sectors, she said.

While the informal and contact-intensive sectors will heal more gradually, the lack of adequate proxies constrains a deeper analysis of the state of their recovery, Nayar said.

Barclays has forecast the economy to have grown 0.4 per cent in October-December. “India’s ‘recession’ is more due to the lockdown, and as mobility restrictions were removed, activity bounced back, especially necessary consumption. Activity is now back to last year’s levels, led by manufacturing and agriculture. We see services also seeing last-mile unlocking as vaccinations speed up,” said Rahul Bajoria, chief India economist, Barclays.

The National Council of Applied Economic Research (NCAER) has estimated growth at 0.1 per cent in the quarter.

“The Indian economy is on a fast track to normalisation. The medium-run challenge of catching up with the pre-pandemic growth path remains,” said Bornali Bhandari, senior fellow, NCAER.

SBI Research and QuantEco Research projected the economy to have grown 0.3 per cent in the quarter. SBI group Chief Economic Advisor Soumya Kanti Ghosh said his projections were with an upside.

This means GDP may have grown higher, depending on the factors considered. Yuvika Singhal, economist at QuantEco Research, said marginal growth was led by manufacturing within industry and public administration within services.

CARE Ratings, India Ratings and CRISIL say the economy would come out of recession in the fourth quarter.

BofA also saw the economy to have been in recession in Q3.

Together with the third-quarter numbers, the National Statistical Office (NSO) will also give the second advance estimates of GDP numbers for FY21. The first advance estimates had pegged economic contraction at 7.7 per cent for the current financial year.

SBI Research had forecast it at 7.4 per cent. Ghosh said, “We have revised it to 7 per cent.”