India's GDP growth expected to rebound to 6.7% in H2, full-year forecast at 6.4%: JP Morgan
The report highlighted that the sluggish figures for the third quarter were not entirely unexpected, as the economy had been showing signs of cooling in recent months.
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NEW DELHI: India's economic growth is expected to accelerate to 6.7 per cent in the second half (H2) of the fiscal year, bringing the full-year 2024-25 GDP growth to 6.4 per cent, according to a report by JP Morgan.
India's economy grew at 5.4 per cent in the July-September quarter of 2024, marking the lowest growth rate in seven quarters and falling significantly below market expectations. This slowdown is attributed to a combination of cyclical factors and weaker-than-expected consumption, investment, and exports. The report highlighted that the sluggish figures for the third quarter were not entirely unexpected, as the economy had been showing signs of cooling in recent months.
Core Gross Value Added (GVA), excluding agriculture, public administration, and subsidies, decelerated sharply to 5.3 per cent, the lowest in seven quarters. Nominal GDP growth, which accounts for inflation, slowed to just 8 per cent, the weakest since December 2020. "We expect growth to average about 6.7 per cent in the second half of the fiscal year, taking full-year 2024-25 GDP growth to 6.4 per cent," the JP Morgan report stated, citing factors that could boost growth in the coming quarters.
The report also pointed to a sharp rise in government spending, strong agricultural growth driven by a robust monsoon, and a reduction in crude oil prices as key contributors to firmer earnings. Additionally, the mining and electricity sectors are expected to normalise, while lower subsidies could further benefit GDP growth. The third-quarter performance was characterised by factors that dampened growth.
Private consumption, a key driver of the economy, showed signs of strain. Growth in private consumption slowed to 6 per cent from 7.4 per cent in the previous quarter, despite a boost in rural demand. Urban consumption, which had been supported by excess savings and wage growth, began to slow, potentially weighing on overall consumption going forward. Exports also underperformed, growing by just 2.8 per cent, reflecting weak merchandise export performance.
The global economic environment for goods exports has become increasingly challenging. Public investment has been slower to pick up, partly due to the ongoing general election process, contributing to a decline in gross fixed investment growth, which slowed to 5.4 per cent in the third quarter of 2024 from 9.1 per cent a year earlier. The report described these combined factors as a "perfect storm," resulting in weaker-than-expected GDP growth of 5.4 per cent.
Looking ahead, the report noted that a more stable government capital expenditure (capex) plan, coupled with continued rural consumption growth and a more favourable global environment for services exports, could support growth in the coming quarters. However, challenges in urban consumption and merchandise exports will require close monitoring as India navigates through the second half of the 2024-25 fiscal year.
