Indian economic growth slows down sharply in Q1 FY20, RBI likely to further ease policy by 50 bps in 2019

Indian Q1 FY20 GDP growth came in much below market expectations. The GDP growth slowed to 5 percent year-on-year from 5.8 percent seen in the prior quarter. This is the first time since March 2013 that growth has been sub-6 percent for two straight quarters.

Private consumption decelerated to 3.1 percent year-on-year in the quarter from 7.2 percent recorded in the prior quarter, the lowest since December 2014. Its contribution to overall GDP eased to 1.8 percentage points from 4.1 percentage points in the prior quarter. Government spending eased to 8.8 percent year-on-year from 13.1 percent seen in the Q4FY19, contributing 1 percentage points to GDP.

Investment growth came in at 4 percent year-on-year, slightly higher than in the previous quarter but slower than the previous six month average of 10.7 percent. Together, domestic demand added 4.9 percentage points to growth compared to 6.7 percentage points in the last two quarters.

Net exports contributed positively to growth for the first time in nine quarters, owing to sharper deceleration of imports than exports. This highlights the soft demand in India, as seen in the moderating figures for non-oil non-gold imports.

Meanwhile, gross value added based growth decelerated to 4.9 percent, with industrial output slowing to 2.3 percent year-on-year, led by manufacturing growth at 0.6 percent. Services growth was softer as well. Nevertheless, agriculture held up stronger than in the prior quarter.

Auto and tractor sales continued to indicate sluggishness in July. Private consumption is the main driver of India’s growth, contributing three-fifths to GDP. This underlines the concern that the current slowdown has bot troughed yet, said ANZ in a research report.

“Today’s weaker than expected growth print reaffirms our call for an additional 50bps of easing by the RBI this year. The structural nature of the slowdown could prompt the government to announce stronger fiscal measures to supplement monetary easing, in order to lift sagging demand”, added ANZ.