SBI cuts GDP growth forecast in second quarter to 4.2%

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The second-quarter GDP growth may further lower down to 4.2% on low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure, and the growth forecast for FY20 has now come down to 5% from 6.1% earlier, an SBI report said.

SBI joins all other global agencies the ADB, World Bank, OECD, RBI and the IMF in downgrading India’s FY20 growth rates.

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“Based on our composite leading indicator that suggests the GDP growth to slow down further from 5.0% in Q1 of FY20 to 4.2% on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure”, the bank said in a report.

India’s GDP was already at the 6-year lowest of 5% in Q1. “Our 33 high frequency leading indicators reveal an acceleration rate which was 65% in Q1 FY19 declined sharply to 27% in Q2 FY20.

SBI said, Skymet also reported that the country as a whole received 110% of the long period average (LPA) of 89 cm of rainfall during the four-month-long southwest monsoon period, making it to the above normal category.

“Among meteorological divisions, Central India and Southern Peninsula received the maximum rainfall of 129% and 116% of their LPA, respectively. Excess Monsoon rains and the floods caused by them had affected the Kharif crops in many states, including Madhya Pradesh, Maharashtra, Gujarat, Karnataka and Punjab.

“While 40-50% soyabean crop has been hit in Madhya Pradesh, which is the biggest producer of the oilseed, 30-40% of the groundnut and up to 30% of cotton crops have been affected in Gujarat.

The report said “As these states are major agrarian states, so this could have a negative impact on the agricultural growth. Considering all these domestic parameters along with the global downturn, we now foresee a GDP growth at 5% in the current fiscal.”

SBI Ecowarp said, “Even IIP growth number for September 2019 was 4.3%, which is quite alarming. We are revising our GDP forecast for FY20 to 5% from 6.1% earlier.

“We expect growth rate to pick up pace in FY21 to 6.2%. We also expect revisions to the GDP data as in the past, but that is likely in February 2020 as is the custom. In FY17, Q1 GDP figure was revised upwards from 7.1% in every revision and finally settled at 9.2%”, the bank said.

“We, however, believe this growth rate in FY20 should be looked through the prism of synchronised global slowdown (countries have witnessed 22-716 basis point decline between June 2018 and June 2019, and India cannot be isolated!).

“India is also significantly lower in Economic Uncertainty Index when compared globally. We also believe that Moody’s change in outlook from stable to negative will not have any significant impact as rating actions are always a laggard indicator and the markets this time have categorically given a thumbs down to such indicators,” it said.

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