India’s Economic Slowdown Worsens As Q4 GDP Growth Falls To The Lowest In Five Years

The Indian economy slowed further in the January-March 2019 quarter, as investment and consumption demand weakened.

The Indian economy slowed further in the January-March 2019 quarter, as consumption and investment in the economy weakened. Key employment generating sectors such as agriculture, manufacturing and construction saw lower growth in the final quarter of year, showed data released on Friday.

Gross domestic product rose by 5.8 percent in the fourth quarter of 2018-19, pulling down growth for the full financial year to 6.8 percent, showed data released by the Central Statistics Office on Friday. In gross value added terms, the economy grew at 5.7 percent in Q4, with full year growth settling at 6.6 percent.

A Bloomberg poll of 43 economists had estimated Q4 GDP growth at 6.3 percent. Economic growth was estimated at 6.9 percent for FY19 according to 23 economists.

The growth slowdown in the fourth quarter was partly due to temporary factors, said Economic Affairs Secretary Subhash Chandra Garg. Some slowdown was seen in automobile sales and availability of finance, Garg said while underlining high interest rates as one reason for the slowdown.

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Where Is The Slowdown?

High frequency indicators, such as car sales and imports, have suggested that consumption in the economy is slackening. The Q4 GDP data gives a slightly different picture. It suggests a moderation in consumption demand but an even sharper fall in investment in the January-March period.

Investments, as reflected by gross fixed capital formation, grew at 3.6 percent in Q4 compared to 10.6 percent in Q3.

Private final consumption expenditure grew 7.2 percent in Q4 compared to 8.4 percent in Q3. The indicator includes final consumption expenditure of households and non-profit institutions serving households, making it the broadest indicator for consumption expenditure.

Government expenditure grew 13.4 percent in Q4 compared to 6.5 percent in Q3.

The January-March quarter GDP suffered mostly from a sharp slowdown in industry. Additionally, the core GVA growth (ex-agriculture and ex-Government spending) has dipped to a multi-quarter low. As expected, consumption showed visible tepidity, while the substantial investment slowdown is worrisome.
B Prasanna, Group Head - Global Markets, ICICI Bank

Sectoral Trends

Gross Value Added by economic activity indicates lower pace of output growth in manufacturing and agriculture. The financial services sector, which many believed would be hurt due to slower growth in credit from non-bank lenders, held up well in the fourth quarter.

  • Agriculture sector grew at -0.1 percent in Q4 compared to 2.7 percent in Q3.
  • The mining sector growth stood at 4.2 percent in Q4 compared to 1.8 percent in Q3.
  • Manufacturing grew at 3.1 percent in Q4 compared to 6.7 percent in Q3.
  • Electricity and other public utilities grew by 4.3 percent in Q4 as against 8.2 percent in Q3.
  • Construction grew at 7.1 percent in Q4 compared to 9.6 percent in Q3.
  • Trade, hotel, transport, communication growth stood at 6 percent in Q4 compared to 6.9 in the previous quarter.
  • The financial services sector grew at 9.5 percent compared to 7.3 percent in the previous quarter.
  • The public administration segment, supported by government spending, grew at 10.7 percent in Q4 vs 7.6 percent in Q3.
Fourth quarter GDP growth numbers translate into another four quarter slowdown in GDP which has come fairly quickly after the quarterly slowdown during 1QFY17-1QFY18. From the supply side main deviation between the provisional estimates and the second advanced estimate came in case of manufacturing and electricity.
Sunil Kumar Sinha, Principal Economist, India Ratings