Construction worker in Mumbai, India, June 5, 2024.
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India’s economy grew just 5.4% in the second fiscal quarter to September, well below economists’ expectations and close to a two-year low.
The print market followed a 6.7% quarter-over-quarter growth, the lowest since the final quarter of 2022. Economists polled by Reuters had forecast growth of 6.5% for the same period, while the Reserve Bank of India had expected growth of 7%.
The country’s statistics agency said growth in the manufacturing and mining sectors was slow.
The country’s 10-year government bond yield fell rapidly from about 6.8% to 6.74% after the announcement.
The weak GDP data could impact the country’s interest rate trajectory, with the RBI’s Monetary Policy Committee scheduled to meet from December 6 to 8. Market players had expected the Reserve Bank of India (RBI) to suspend the repo rate for the 11th consecutive time, with the repo rate currently at 6.5%.
Harry Chambers, assistant economist at Capital Economics, said Friday’s data showed the weakness was “widespread.” His company expects economic activity to “suffer over the next several quarters.”
“While this supports the case for policy easing, the recent spike in inflation means the Reserve Bank of India will not be able to cut rates for several more months,” he said in a research note.
Alicia García Herrero, Natixis’ chief Asia-Pacific economist, appeared on CNBC’s Squawkbox Asia ahead of the GDP release and predicted that India’s economy would slow in 2025 but not “collapse.”
He said Natixis predicts India’s growth rate in 2025 to be 6.4%, but he did not clarify whether this refers to the fiscal year or the calendar year, but print is expected to grow at around 6%. He added that he judged it to be “not a little bit” as low as possible. There are problems, but they are not welcome.”
Separately, the RBI expected GDP growth to be above 7.2% in the fiscal year 2024 ending by March 2025.
Asked what would happen to India’s economy under President-elect Donald Trump’s second term in office, Herrero said the country “is not at the center of the value chain restructuring that China has been pursuing.”
“If I were in the Trump administration, I would start considering tariffs on Vietnam. That would be a more obvious case,” she noted.
He said China could manufacture products in India for consumption there instead of exporting them to the rest of the world, thereby avoiding New Delhi being hit by tariffs.
