India’s GDP Growth Expected to Rebound in H2 FY24-25, JP Morgan Projects Full-Year Growth at 6.4%
New Delhi: India’s economy is set to regain momentum in the second half (H2) of the fiscal year 2024-25, with GDP growth projected to average 6.7%, according to JP Morgan’s latest report. The full-year forecast, however, is pegged at 6.4%, reflecting challenges faced in the first half of the fiscal year.
The optimism for the latter half comes despite a disappointing July-September quarter, where GDP growth fell to 5.4%, the lowest in seven quarters. This figure was well below market expectations, highlighting the pressure on the Indian economy.
Q2 Growth Hits a Seven-Quarter Low
The GDP slowdown in Q2 was attributed to cyclical factors, subdued consumption, sluggish investment, and weak exports. Core Gross Value Added (GVA), which excludes agriculture, public administration, and subsidies, also dropped sharply to 5.3%, the weakest growth in nearly two years.
Even nominal GDP growth, which accounts for inflation, slowed to just 8% — the softest rate since December 2020. The report from JP Morgan described this phase as a “perfect storm” of economic challenges.
Key Factors Behind the Slowdown
- Private Consumption Weakens
Private consumption, a major pillar of India’s economy, grew by just 6% in Q2, down from 7.4% in the previous quarter. This was despite a temporary boost from rural demand. However, urban consumption, which had been buoyed by savings and wage growth, showed signs of strain. - Investment Slows Amid Elections
Public investment saw a slower uptick, likely impacted by the ongoing general election process. Gross fixed investment growth dropped to 5.4% in Q2, a steep fall from 9.1% in the same period last year. - Exports Face Global Headwinds
Export growth also disappointed, clocking in at just 2.8%. Weak merchandise export performance, driven by a challenging global environment, weighed heavily on India’s external trade.
H2 Recovery: Factors Driving Optimism
JP Morgan’s report anticipates a turnaround in H2, supported by several positive developments:
- Government Spending on the Rise
A sharp increase in government capital expenditure is expected to boost economic activity. - Strong Agricultural Performance
A robust monsoon has driven agricultural growth, contributing to rural consumption and overall economic stability. - Lower Oil Prices
A reduction in crude oil prices is likely to ease inflationary pressures and improve corporate earnings. - Sectoral Normalisation
Recovery in mining and electricity sectors, coupled with reduced subsidies, is expected to provide further support.
Challenges Ahead: Urban Consumption and Exports
While the report is optimistic, it cautions against lingering risks. Urban consumption is expected to face headwinds due to waning savings and slower wage growth. Additionally, the challenging global environment for merchandise exports remains a critical factor that could limit overall growth.
JP Morgan also highlighted the importance of a stable government capital expenditure (capex) plan to sustain momentum in the coming quarters.
Outlook for FY24-25
India’s economy is projected to close FY24-25 with a growth rate of 6.4%, despite the rocky start. Continued rural consumption growth, favourable conditions for services exports, and government-led investments are likely to play pivotal roles. However, close monitoring of urban consumption and export dynamics will be key as the economy navigates the second half of the fiscal year. As global uncertainties persist, India’s resilience will depend on its ability to balance domestic growth drivers with external challenges.
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