Q2 GDP growth may slow down to 6.5%, say SBI economists

However, they added that this is a "temporary impasse" and the "narrative might change completely" from the ongoing December quarter as tailwinds of recovery are now reinvigorated by a surge in rural demand

MUMBAI: Economists at the nation’s largest lender SBI have said the second quarter GDP growth may slow down to 6.5 percent. In the first quarter, it was at a 15-month low of 6.7 percent, down from 8.2 percent in the same period the previous fiscal.

They also said economic growth for the full fiscal will be "closer to" 7 percent, adding, “There is some incipient pressure evident on the domestic economy. Based on our analysis of 50 leading indicators, both consumption as also demand centric, a dip looks plausible across select cohorts of agri, industry and services in Q2."

However, they said aggregate demand continues to grow albeit with a slower momentum than in the preceding quarters and painting a somewhat mixed picture.

Stating that they track 50 indicators to gauge economic activity, they said the proportion of indicators showing acceleration has declined to 69 percent in Q2 as against 80 percent in Q2FY24 and 78 percent in Q1FY25.

However, they added that this is a "temporary impasse" and the "narrative might change completely" from the ongoing December quarter as tailwinds of recovery are now reinvigorated by a surge in rural demand, even though urban demand is falling.

Domestic tractor sales jumped in October, while two-wheeler and three-wheeler sales are showing consistency in growth, they said, adding that rural agri wage growth also accelerated in August this year. Overall auto sales rose more than 23 percent in the month.

Addressing concerns on urban demand, they explained that the same can be indicative of shifting contours of urban demographics and marked preferences to quick commerce, which is not being mapped properly.

The regulatory tightening on unsecured lending and roadblocks hindering roll over/refinancing of debt through unsecured credit is punctuating the unwarranted exuberance built up post pandemic, more in the urban ecosystem, they added.

The economists have pitched for avoiding policy mistakes of the past like farm loan waivers which end up distorting credit culture or having minimum support prices-driven agricultural growth which is "fiscally extravagant and results in extreme ground water depletion".