No end to downgrades in GDP estimates as economists remain divided on severity of slowdown

• There is a wide divergence in market consensus regarding Q2 GDP numbers to be released on November 30, said SBI Ecowrap.
  
  
• On Monday, rating agency Standard & Poor’s shared that it now expects India’s GDP to grow at 7% for FY23 as compared to the 7.3% it had estimated earlier.
  
  
• India’s growth momentum will be affected by the fading effects of post-Covid reopening, coupled with higher borrowing costs, as per Goldman Sachs.
  

SBI Ecowrap has pegged India’s GDP growth rate for Q2 FY23 at 5.8%, much lower than the RBI’s estimate of 6.3%. The research report which was released late Monday, also said that this growth is shrouded in significant uncertainties.

“There is a wide divergence in market consensus regarding Q2 GDP numbers to be released on November 30. Consensus estimates are at 6.1%. A range of 5.6%-6% is better than a point estimate,” the report said, which is using a new model to predict how the economy is growing, with a lag.

As per its estimates of Q2 growth, its fiscal year growth estimates too stand at 6.8%, as compared to the popular consensus of 7%.

“Overall, a sub 6% growth if it materialises in Q2, could imply that India is likely to have expanded at lower than the 7% benchmark. We however believe there is somehow a large disconnect between leading indicators and GDP growth since the onset of pandemic. Growth impulses continue to be strong and it may be better to look through the GDP headline numbers for a couple of quarters before arriving at a definitive conclusion about the growth trajectory,” said SBI Ecowrap.

SBI’s commentary is in contrast to ICRA’s Q2 growth predictions that came on November 21, which pegs Q2 growth at 6.5% – half of the growth seen in Q1, but also ahead of RBI estimates.

While the first quarter of FY23 exhibited double digit growth at 13.5%, it had missed estimates, sending many agencies to recalibrate their projections of the year. Apart from SBI and Citibank, RBI too had changed its annual growth estimates - leading many agencies to follow suit.

On Monday, rating agency Standard & Poor’s now expects India’s GDP to grow at 7% for FY23 as compared to the 7.3% it had estimated earlier. CRISIL estimates mirror S&P’s – as it lowered from 7.3% to 7% – but over a week ahead of S&P. CRISIL also expects FY24 growth to slow down further to 6%.

Giving an early view of India’s pace of growth is export data. Hit by a global slowdown, Indian exports for the month of October shrunk by 16.6% to $29.78 billion as compared to last year, according to the Commerce Ministry. Imports grew by 5.5%, widening India’s trade deficit.

Goldman Sachs believes 2023 will be tougher

Goldman Sachs, which provides estimates for calendar years as opposed to fiscal years, which believes the pace of growth will slowdown in 2023. A couple of weeks back, it slashed GDP growth expectations to 5.9% next year, as compared to the 6.9% growth of 2022.

India’s growth momentum will be affected by the fading effects of post-Covid reopening, coupled with higher borrowing costs, as per Goldman Sachs.

“Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand. In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up,” said Goldman Sachs per a Bloomberg report.

Goldman Sachs expects the global economy to grow at 1.8%, as US resilience contrasts with a European recession, and a bumpy reopening in China. “Global growth slowed through 2022 on a diminishing reopening boost, fiscal and monetary tightening, China’s Covid restrictions and property slump, and the Russia-Ukraine war,” said a redacted version of Goldman Sachs report on November 16.

In the second week of November, Moody’s too cut its India GDP growth forecast for 2022 to 7% from its earlier estimates of 7.7%. The rating agency has cited rising inflation coupled with high interest rates and a slowing global economy as the reasons behind the same.

However, Moody’s pegged India’s GDP growth rate at 4.8% for 2023 – much lower than that of Goldman Sachs’ report.

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Exports shrink by 16.6% to $29.78 bn in Oct

S&P cuts India's growth forecast to 7% for FY23