Worst Of India's GDP Slowdown To Pass As Rural Demand Sees Revival, Says Barclays
Barclays expects India GDP growth to rebound to 7.2%, on the back of easier monetary conditions, stable urban demand, and higher rural demand.
The Indian economy's recent growth slowdown this year is set to pass as most activity-based high frequency indicators bottomed out in the September quarter and rural demand is reviving, Barclays said in a note on Tuesday.
In calendar year 2025, the British investment bank expects GDP growth to rebound to 7.2%, citing easier monetary conditions, stable urban demand, and higher rural demand.
The July-September growth rate slowed to the most in seven quarters to 5.4%, leading to economists trimming their future projections. The bank observed the recent slowdown was due to excess rainfall, weak government spending and slowing urban demand.
"In particular, rural demand is clearly reviving, supported by a favourable monsoon and a rise in wages. Urban demand is stabilising at low levels too. Government spending is picking up momentum," Barclays said in a note.
After lagging for much of the second and third quarter, with the deceleration driven by constraints related to elections and capacity issues, government spending is turning the corner, although capex is still slow, according to the note.
Indicators That Show Revival
Barclays said average year-on-year growth rates for October-November in sectors, such as petrol consumption, diesel demand, two-wheeler and car sales, power consumption, digital payments (by value), civil aviation passenger traffic, toll collections, and tractor sales are higher compared to July-September.
While the festival-heavy third quarter was expected to see an uptick in consumption demand, the early Diwali this year, potentially led to slower-than-usual demand trends in September, as consumers may have delayed purchases ahead of the festive season, it said.
Rural demand, including growth in two-wheeler and tractor sales, showed improvement in October-November compared to the second quarter.
"Early reports from FMCG companies also suggest a recovery in rural consumption, although urban demand remains subdued. While we acknowledge that a boost in rural demand may not fully compensate for the weakness in urban demand, we view the slowdown in urban areas as a rationalisation rather than a decline," Barclays said.
Another aspect Barclays flagged is that headline GDP growth rates in recent quarters have been affected "by both idiosyncratic and statistical factors, some of which have reversed".
"The statistical and idiosyncratic factors that overstated growth rates in 2023 are not just mean reverting, but over-correcting. This drag on 2024 growth is set to fizzle," the note said.
