India Q2 GDP: India's gross domestic product (GDP) growth is expected to align with RBI's target of 7% for the second quarter of FY25. If that is the case, the economy would gradually surpass from 6.7% growth rate in Q1FY25. In the second quarter, government spending has likely picked up momentum, which was not the case in Q1 due to the election. The growth momentum is foreseen to be healthy in H2FY25. Currently, India's economy continues to be resilient amidst global turmoil due to geopolitical uncertainties.
Q1 GDP:
India's real GDP recorded growth of 6.7% in Q1 of FY25, slower than compared to the 8.2% growth rate in Q1 of the previous fiscal. This data was also below market estimates of 6.9%.
As per Trading Economics, this was the slowest expansion in five quarters, owed to a sharp slowdown in government spending as the long-awaited general elections drove several usual government activities to halt. Still, gauges of slowing consumer spending also signalled that the Indian economy is resilient to high interest rates by the RBI to a lesser extent, strengthening the case for doves in the RBI.
What To Expect In Q2FY25?
Rajani Sinha, Chief Economist, CareEdge Ratings said, "We expect GDP growth to be 7% in Q2 following the 6.7% growth seen in Q1 FY25. Government spending that was reduced in Q1 due to election-related restrictions is likely to pick up in Q2."
Sinha further believes that healthy private consumption and Investment growth seen in Q1 is likely to continue in Q2. Monsoon has been healthy and that should help improve the rural consumption demand.
However, according to Sinha, high food inflation remains a dampener for consumption demand. Moreover, some of the recent high-frequency indicators like GST collection, IIP, core sector, and car sales are showing weakness and that is concerning.
For the entire fiscal FY25, Sinha said, "We expect GDP growth at around 7%. We expect growth momentum to improve in H2 FY25."
CareEdge's economist's forecast is based on expectations of improvement in consumption and private investment growth.
He added, "Food inflation will remain a critical factor impacting consumer sentiments and spending in the coming quarters. Sustained pick up in consumption demand and stable global economic environment will be critical factor influencing private investment in the economy."
"Weak demand in China and the resultant flooding of goods in the Indian market has been a dampener for domestic private investment. While we expect export growth to improve in H2 FY25, increased geo-political uncertainties remain a concern for the external sector," Sinha lastly said.
In the October 2024 policy, RBI said that the global economy has remained resilient and is expected to maintain stable momentum over the rest of the year, amidst downside risks from intensifying geopolitical conflicts. In India, real gross domestic product (GDP) registered a growth of 6.7 per cent in Q1:2024-25, driven by private consumption and investment. Looking ahead, the agriculture sector is expected to perform well on the back of above-normal rainfall and robust reservoir levels, while manufacturing and services activities remain steady. On the demand side, healthy kharif sowing, coupled with sustained momentum in consumer spending in the festival season, augur well for private consumption.
Further, the central bank added that consumer and business confidence have improved. The investment outlook is supported by resilient non-food bank credit growth, elevated capacity utilisation, healthy balance sheets of banks and corporates, and the government's continued thrust on infrastructure spending. External demand is expected to get support from improving global trade volumes.
Taking these factors, RBI is predicting GDP growth at 7.2% for FY25, while it expects 7% growth rate in Q2. RBI expects GDP growth to expand to 7.4% in Q3 and stay flat at 7.4% in Q4 for the current fiscal. While for FY26, the overall GDP growth is seen at 7.3%.
Unlike RBI, global brokerage S&P Global Rating factors India's GDP growth to ease to 6.8% for the current fiscal. This is due to high interest rates and a lower fiscal impulse to temper urban demand.
As per S&P, while purchasing manager indices (PMIs) remain convincingly in the expansion zone, other high-frequency indicators indicate some transitory softening of growth momentum due to the hit to the construction sector in the September quarter.
That being said, S&P expects RBI to cut key interest rates only once in FY25.
Along similar lines to S&P, Morgan Stanley economist has also revised estimate for India's GDP growth to 6.7% for FY25, and predicts the growth rate to be at 6.5% for FY26.
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