Second Quarter FY 2021 May Also See A GDP Contraction

After the first quarter GDP came in at worse than expected contraction of 23.9 per cent, it is highly possible that the second quarter would also show a contraction.

"Going forward, it appears that Jul'20 was worse than Jun'20 and the initial data for Aug'20 is also not very encouraging. There would be another contraction in Q2FY21; however, what needs to be seen, and as we have always feared, the turnaround from late CY20 could be much slower than the general expectations," says Nikhil Gupta, Economist - Institutional Equities, Motilal Oswal Financial Services Ltd.

According to him, the worse than the consensus of 18% fall, real GDP decline is a shocker. "Of course, it is not comparable to anything in the history and that's why few surprises are highlighted below:

Private consumption fell 27% (vs. our exp of -18%)

Total investments declined 47.5% (vs our exp of -30%)

Government consumption grew 16.4%, in line with our forecasts

Net exports posted highest surplus in real terms (and third on record since FY96)

Nominal GDP declined 22.6% YoY last quarter, implying an output loss of INR15T (assuming 8% YoY growth in pre-COVID scenario)

Real GVA declined 22.8% YoY, of which services was the biggest surprise. 'Trade and transportation' fell by almost half, and 'public administration and defence' (which includes govt spending and all else) shrank 10% last quarter.

GDP deflator grew 1.6%, more in line with the deflation in WPI, rather than CPI.

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