MUMBAI: Ahead of the official release of June quarter growth numbers next week, economists have offered differing forecasts, with rating agency Icra pegging the lowest at 6% and German brokerage Duestche Bank at the highest at 7% and Goldman Sachs seeing growth moderating to 6.6% on account of lower government capex and tepid consumption demand.
Thus far, the RBI’s forecast of 7.1% is the highest but that is 20 bps lower than its June estimate. Icra cheif economist Aditi Nayar forecasting for the six quarter low growth of 6% attributed the same to the reduction in government capex and a fall in urban consumer demand. For the full fiscal year 2025, she expects the economy clipping at 6.8%, down from 8.2% in the previous fiscal. Official growth data for the June quarter will be released by the Ministry of Statistics and Programme Implementation on August 30. In the first quarter, the economy grew at 8.2%.
Contributing factors
Nayar noted several contributing factors for the projected moderation in the June quarter such as temporary lull in various sectors due to the parliamentary elections and sluggish government capital expenditure at both central and state levels. “Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some industrial sectors. The heat wave also affected footfalls in service sectors, even as it provided a major boost to electricity demand. On balance, we foresee a transient moderation in gross value added (GVA) and GDP growth in Q1 to 5.7% and 6%, respectively.”
Meanwhile, Goldman Sachs has lowered its growth forecast by 80 bps to 6.6% for Q1 on fiscal drag and retail credit slowdown.“We lower growth estimate for Q1, reflecting fall in government capex (-35% YoY) in the election quarter, and a slight fall in urban demand, partly offset by nascent recovery in rural consumption.”
“As a result of these, we lower full-year growth forecast by 20 bps to 6.7%. We cut FY26 forecast by 20 bps to 6.4% as we expect a fiscal drag from Q1 of next fiscal given fiscal consolidation target at sub-4.5%,” economists of the brokerage said.
Easier monetary policy
They expect easier monetary policy to offset some of the drags on growth in 2025 as we expect the RBI to start its easing cycle in December 2024. In another report, Deutsche Bank has pegged its forecast at 7% in Q1, 120 bps lower than the previous 12-month period, 80 bps slower than the previous three-month ending March 2024 and 10 bps lower than the downwardly revised estimate that the RBI has given in the August forecast. The brokerage sees Q1 growth clipping in at 7%, down from 7.8% in the March 2024 qaurter.
The brokerage said its macroeconomic momentum indicator, a composite index of five high-frequency growth indicators — industrial production, exports, non-oil and non-gold imports, bank credit and consumer goods — are indicating 7% growth for the reporting period. Its composite leading indicator comprising 65 high-frequency gauge is pointing towards 7% real GDP growth.
“Our FY25 full-year growth forecast remains at 6.9% at this juncture,” it said, adding that while government expenditure is likely to pick up from this quarter, there is a non-trivial risk that corporate sector profitability remains muted even in subsequent quarters, led by higher input costs (rising WPI inflation) and a reduction in demand.