India’s economic growth is anticipated to accelerate to 6.7% in the second half (H2) of the fiscal year, with a full-year GDP growth forecast of 6.4% for 2024-25, according to a recent report by JP Morgan.
The Indian economy grew at a disappointing 5.4% during the July-September quarter of 2024, marking the lowest growth rate in seven quarters and falling significantly short of market expectations. This slowdown is attributed to a combination of cyclical factors, alongside weaker-than-expected consumption, investment, and exports.
Sluggish figures for third quarter
The report noted that the sluggish figures for the third quarter were not entirely unexpected, as there had been indications of cooling in the economy in recent months. Core Gross Value Added (GVA), which excludes agriculture, public administration, and subsidies, decelerated sharply to 5.3%, the lowest in seven quarters. Nominal GDP growth, which accounts for inflation, slowed to just 8%, the weakest since December 2020.
JP Morgan’s report stated, “We expect growth to average about 6.7% in the second half of the fiscal year, taking full-year 2024-25 GDP growth to 6.4%,” citing several factors that could bolster growth in the upcoming quarters. Key contributors include a significant rise in government spending, strong agricultural performance driven by a robust monsoon, and a reduction in crude oil prices.
Additionally, the mining and electricity sectors are expected to stabilize, while lower subsidies could further enhance GDP growth. However, the third-quarter performance was characterized by challenges that dampened growth. Private consumption, a critical driver of the economy, showed signs of strain, slowing to 6% from 7.4% in the previous quarter, despite an uptick in rural demand. Urban consumption, buoyed by excess savings and wage growth, began to decline, potentially impacting overall consumption moving forward.
Exports also lagged, growing by just 2.8%, reflecting a weak performance in merchandise exports amid a challenging global economic environment. Public investment has been slow to rebound, partly due to the ongoing general election process, contributing to a decline in gross fixed investment growth, which slowed to 5.4% in the third quarter of 2024, down from 9.1% a year earlier.
The report described these combined factors as a “perfect storm,” resulting in the weaker-than-expected GDP growth of 5.4%. Looking ahead, JP Morgan noted that a more stable government capital expenditure plan, alongside continued rural consumption growth and a more favorable 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.
