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Economy grows slowly in December quarter, with virus impact to come

By Reuters

  • 28 Feb 2020
Economy grows slowly in December quarter, with virus impact to come
Credit: Thinkstock

India’s economy expanded by 4.7% in the December quarter compared with the same period a year earlier, the slowest pace in more than six years, and analysts see the global impact of the coronavirus further stifling growth in Asia’s third-largest economy.

The gross domestic product data released on Friday showed consumer demand, private investment and exports all struggling, while higher government spending and an improvement in rural demand lent support.

The read-out for the final quarter of 2019 matched the forecast of analysts in a Reuters poll, but was below a revised - and greatly increased - 5.1% growth rate for the previous quarter.

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The annual GDP figure for the September quarter was ramped up from an earlier estimate of 4.5%, while the April-June reading was similarly lifted to 5.6% from 5.0%, data released by the Ministry of Statistics showed on Friday.

Prime Minister Narendra Modi’s government took several steps earlier this month to try to bolster economic growth, including increasing state spending on infrastructure.

But many economists expect the impact of those efforts to be outweighed by the global fallout from the coronavirus epidemic that began in China.

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“The coronavirus remains the critical risk as India depends on China for both demand and supply of inputs,” said Abheek Barua, Chief Economist at HDFC Bank.

In its annual budget presented earlier this month, the government estimated economic growth in the current fiscal year ending in March would be 5%, the lowest for 11 years.

Modi’s government is targeting only a slight recovery in growth to 6% for 2020/21, far below the level needed to generate jobs for millions of young Indians entering the labour market each month.

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Analysts earlier expected growth would pick up gradually driven by a favourable base effect, a cut in corporate tax rates last September and increased government spending.

But the central bank earlier this month warned that the downside risks to global growth have increased as a result of the coronavirus epidemic, the full effects of which are still uncertain and unfolding.

A spike in inflation to a more than 5-1/2 year high of 7.59% in January is expected to make the Reserve Bank of India hold off on further cuts in interest rates for now, while keeping its monetary stance accommodative.

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