Q2 GDP Growth shows sequential recovery,but head winds ahead: Report

GDP growth in Q2 FY23 stood at 6.3% y-o-y (in line with our forecast) compared to 13.5% in Q1 according to a study report released by HFDC.

For FY24, we expect GDP growth of 6.3%, with downside risks to our forecasts. There are risks stemming from the slowdown in global growth and impact of inflation and tighter financial conditions on the consumption recovery.On the policy front, this GDP print does not change our view on RBI’s rate action in December.

Inflation remains above the RBI’s upper tolerance band and warrants a further increase in rates. We continue to expect at 35bps rate hike in the next policy and then a 25bps in the February policy, which would take the policy rate to 6.5% by fiscal year end says the report.

All sectors moved above pre-pandemic output levels. To recall, services like trade, hotels,transport and communications hadn’t yet surpassed pre-covid levels in the last quarter.

Agriculture sector recorded growth of 4.6% y-o-y despite the impact of uneven monsoons on kharif production. But the bigger contributor to growth was the services segment that recorded the highest sequential growth in the last three quarters(roseby8.7% q-o-qin Q2)– clearly reflecting the impact of the there-opening effect.

The biggest contributors to GDP growth in Q2 were investment and private consumption and the component “discrepancies”.