India's economy likely to contract by 6.2% annually in July-September

New Delhi, 28 November 2022, Monday

The Indian economy is likely to return to a more modest 6.2% annual growth rate in July-September after double-digit expansion in the previous quarter, but weaker exports and investment will keep future activity under control, a Reuters poll showed.

In April-June, Asia's third-largest economy showed explosive growth of 13.5% from a year earlier, mainly depressed by epidemic-control restrictions due to the corresponding period in 2021, but the Reserve Bank of India has now revised its target of 2% to 6%. Raises interest rates to curb inflation running above the range, which is set to further slow the economy.

A Reuters poll of 43 economists had forecast 6.2% annual growth for the latest quarter of November 22-28, slightly lower than the RBI's 6.3% view. Forecasts were between 3.7% and 6.5%. "We have behind us an exceptionally favorable base for the April-June '22 quarter, which will normalize the real GDP growth rate from July-September '22 year-on-year and also make it easier to measure the true underlying economic momentum," Deutsche Bank's India and South Asia Chief Economist Kaushik Das said.

Business sentiment in India has remained relatively strong, despite business surveys indicating weakening economic activity in most major economies, where central banks are responding to inflation with higher interest rates. Still, industrial output grew at an average annual pace of just 1.5% in the last quarter, the weakest in two years, pointing to a significant slowdown in manufacturing activity, the main driver of growth.

"GDP is expected to rise sequentially due to sustained recovery in services. Mining and manufacturing are expected to pick up. On the demand side, lower global growth has impacted exports in Q2 (July-September)," Sakshi Gupta said. The finance ministry said on 24 November that A global recession could dampen the country's export business outlook. Meanwhile, the RBI raised its key policy interest rate to 5.9% from 4.0% in May and is widely expected to add another 60 basis points by the end of March.

"Between December and February, trends towards growth may become more pronounced," Deutsche Bank's Das said.