India’s economic growth seems to have decelerated in Q2, real GDP to continue to slow in Q3

The Indian economic growth is expected to have decelerated in the quarter ending June. According to a Societe Generale research report, the country’s GDP is expected to have grown 7.5 percent in the second quarter, a deceleration from 7.9 percent year-on-year in the first quarter. The economic activity in the second quarter does not yet indicate towards any sustained recovery.

Certain high-frequency data indicates towards mixed performance, however. The core sector performance in the June quarter was strong, but it was predominantly because of public capex in infrastructure, mostly roads. Nevertheless, private capital expenditure continues to be weak.

The Index of Industrial Production (IIP) also continues to be subdued, particularly when compared with the same period a year ago. Sales of commercial vehicles in India, which were quite robust in early 2016, have also begun declining.

The rural economy of India continued to struggle as the heat wave extended until May. It worsened the stress for this part of India. But urban demand appears to have remained quite well. This is seen in increasing leveraged demand, with banks renewing their concentration on retail lending as corporates struggled.

The improving net trade is likely to have provided a boost to the GDP growth. The nation’s exports have been shrinking in US dollar terms since December 2014; however, exports in rupee terms have registered growth of 3.2 percent year-on-year in the second quarter. But with imports continuing to contract, net trade is expected to be less of a drag on the growth in this quarter, stated Societe Generale.

Moreover, favorable base effects are also expected to buoy the overall GDP growth. While nominal GDP growth is expected to be strong in this period, the real GDP growth is likely to continue to decelerate as the deflator is expected to move up sharply in the quarter, added Societe Generale.