Economy News

Economists revise FY24 GDP forecasts by up to 0.8% after strong Q2

As many as 10 economists have revised upwards their growth projections for the current fiscal year by 20-80 basis points (bps).

In the light of the higher-than-expected GDP growth of 7.6% in Q2FY24 – which was propelled by a sharp rise in manufacturing activity and investments – many economists have raised their GDP growth forecasts for FY24.

As many as 10 economists have revised upwards their growth projections for the current fiscal year by 20-80 basis points (bps). Nomura raised its projection by a steep 80 bps (see chart).

“Owing to the robust Q3 (in this case July-September), we are raising our FY24 GDP growth projection to 6.7% y-o-y from 5.9% previously,” Nomura said in a report.

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“Q3 (July-September) GDP growth surprised positively… led by a stronger pickup in fixed investment and government consumption (on the demand side) and stronger manufacturing and construction output growth (on the supply side),” it said.

The projections by economists are higher than the 6.5% growth estimate – which the government has retained. Chief Economic Adviser V. Anantha Nageswaran, post the release of GDP data on Thursday, said that the economy might be doing better than the current official estimates suggested. “We might be understating India’s growth rather than overstating it,” he said.

According to the GDP data, manufacturing grew 13.9% in Q2FY24, at the highest pace recorded in nine quarters. However, this came on a low base. In Q2 FY23, manufacturing had contracted (-)3.8%.

Economists also pointed to deflators playing a role in boosting manufacturing growth. “Manufacturing deflator was negative in Q2 as wholesale inflation (WPI) was negative in the quarter. This could have pushed up the real GDP growth figures (real GDP numbers are derived for certain categories in the GDP data by deflating nominal activity indicators),” HDFC Bank said in a report.

Investments – represented by gross fixed capital formation (GFCF) – witnessed its share in the GDP increase from 34.7% in Q1 FY24 to 35.3% in Q2 FY24. A share of 35.3%, although similar to Q4 FY23, is the highest in 47 quarters.

“Broad-based increase visible in investments at 11% y–o-y and has increased to 35.3% of GDP (constant prices) led by general government, real estate upcycle and higher corporate capex,” said ICICI Bank in a report.

“High frequency indicators show growth momentum has continued in October as well with festive demand adding to growth. Given structural upturn seen in tax collections as well as government and private sector capex, we have revised our FY24 GDP growth estimate to 6.6% from 6.3%,” it said.

Even though GDP growth in H1 came in at 7.7%, a weaker H2 will weigh down on the full-year growth and may pull it down much below 7%. A weak agricultural growth and tepid private consumption will have an adverse impact on growth.

“GDP growth in H2FY24 is expected to moderate, in large part due to waning support from base-effects. Growth momentum is expected to moderate as companies profit growth slows, with rise in input cost pressures. Recovery in rural demand has remained mixed due to relatively softer pace of rural wage growth and uneven monsoon. Support to capex cycle from government expenditure (Centre and states) could reduce in H2, ahead of the elections,” said IDFC FIRST Bank in a report.

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