High-Frequency Indicators Show A Resilient Indian Economy In Q4

High-frequency indicators reflect economic resilience in the January–March quarter.

India's GDP grew 8.4% over a year earlier in the October-December quarter, according to the latest estimates released by the government's statistical agency last week. Gross value added, which strips out indirect tax and subsidies, is estimated to have grown 6.5%. The divergence was on account of net indirect taxes and is unlikely to be sustainable.

Still, in the January-March quarter, most high-frequency indicators, including auto sales, manufacturing and services PMI, fuel consumption, merchandise trade, and bank credit, continued to grow, showing signs of resilient economic activity.

High-frequency indicators show that the economy's strong third-quarter and fourth-quarter momentum carried into the first quarter of this year, Moody's said in a note Monday. Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient, the global ratings agency said, raising the GDP growth forecast to 6.8% for 2024 from 6.1% previously. On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum, it said.

Commercial vehicle sales did not grow in January, though Vinod Aggarwal, president of the society of automobile manufacturers, expects a pickup in the next couple of months.

Tractor sales remained in the red, indicating continuing weakness in rural areas.

Eight core industries growth continued to ease, growing by 3.6%, indicating that manufacturing activity is showing signs of weaker growth in the ongoing quarter.

Early data for January 2024 suggests that 71% indicators were in the positive territory on an annual basis, up from 64.6% in December 2023, according to Teresa John, economist at Nirmal Bang Institutional Equities. On monthly basis, 64.52% indicators were in the positive territory in January 2024, marginally down from 66.7% in December 2023, John estimates.

Slower GDP Growth In Q4FY24

Imputed numbers point towards GDP growth moderating to 5.7% in the January–March quarter.

Slower growth in Q4 FY24 is likely to be led by a sharper slowdown in the manufacturing sector, according to QuantEco Research. While an adverse base will be at play in Q4, the absence of festive season-related buoyancy, input prices moving somewhat higher alongside a likely sequential slowdown amidst heightened global geopolitics emanating from the Red Sea region, and uncertainty ahead of the domestic election cycle cannot be ruled out, the note said.