Will Q2 GDP predict a strong recovery for the year?

For markets, data is like a rear-view mirror – it helps them confirm how much of their hopes and expectations have been met. In addition, this review is able to accommodate future speeds. Economists believe that the September quarter performance will bring good news in this regard.

Numerically, GDP growth expectations are within a broad band of 7.8-9.6% among analysts, simply because it will also have the noise of a base effect.

Recall that in the September quarter 2020, GDP shrank by 7.44% as the economy struggled to get back on its feet due to one of the strictest lockdowns caused by the first wave of the pandemic.

Even on a sequential basis, this year’s numbers may seem out of play due to the second wave of the pandemic in Q1FY22. That said, the economy’s rebound from the hit of the pandemic can be understated.

Here, analysts believe that the states will see the sharpest rebound in services given the gradual opening up of most activities. From malls to movie theatres, most services have opened to full capacity or at least partial capacity. “Relative controls on new infections, and a large increase in vaccinations helped improve service sector activity. In fact, while supply constraints weighed on manufacturing, services recovery reached a much higher level during the previous quarter. ,” analysts at Barclays Securities (India) Pvt Ltd said in a note. About 68% of Indians have received at least one dose. COVID-19 vaccine and 32% fully inoculated services are expected to remain in demand in the coming quarters as well. Another factor helping services is that the financially affluent, hitherto spent on goods, will now turn into demand, said Pranjul Bhandari, chief economist at HSBC Securities and Capital Markets (India) Pvt Ltd, in a note. Pointed to more services.

Rich people have been spending more on goods since the lockdown was lifted, amid wide disparity caused by the pandemic. The fact is that consumer goods imports have been 32% higher than normal, while local production levels are below the normal spending mark, Bhandari explained. The result is that most of the rebound in GDP in the September quarter and in the quarters ahead will come from services.

This does not mean that manufacturing will lag behind. Analysts at DBS expect the gross value added (GVA) growth in the manufacturing sector to show a growth of 8.5 per cent, which will be faster than services. Indeed, the sense of euphoria associated with festivals has meant that Indians have increased their purchases of goods. This suppressed demand will be reflected in rapid manufacturing sector growth, along with a reduction in unemployment. But the biggest drawback of manufacturing has been the disruption in supply chains globally, which has affected production. Given that these disruptions persist, manufacturing growth will remain under pressure for the rest of the year.

This brings us to the agriculture sector. Here, analysts believe agricultural output will be strong given the normal monsoon distribution, barring some period of trouble. Besides this, the production of Rabi season is also expected to be strong, which means that the growth of the agriculture sector will be higher than the historical average of FY22. Noting that most sectors will see a healthy recovery, some analysts have even raised their FY12 growth forecasts from earlier estimates. For example, the research wing of the State Bank of India (SBI) now expects GDP growth to be 9.3-9.6%, higher than their earlier expectation of 8.5-9.0%. Goldman Sachs and UBS Securities also raised their forecasts. According to analysts at HDFC Bank, India’s economy will reach pre-pandemic production levels by the end of FY22. Be that as it may, the pandemic will leave behind it, one of them being a potential slowdown in the growth rate for the country. HSBC’s Bhandari estimates that India’s expected growth slowed to 5.5% from 6% just before the pandemic. The real challenge for the economy is to reach its high potential growth level.