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GDP above forecast, but spending cuts pose risks: Analysts

The economic research department of State Bank of India said the GDP growth raises the hopes to achieve the crucial 5 per cent mark for the fiscal.

twitter-logoPTI | November 30, 2013 | Updated 11:14 IST
GDP above forecast, but spending cuts pose risks: Analysts

Analysts welcomed the better Q2 GDP readings of 4.8 per cent, which came in above their expectations, but warned that the planned expenditure cuts by the government will be the key thing to watch out going forward.

The economic research department of State Bank of India said the GDP growth raises the hopes to achieve the crucial 5 per cent mark for the fiscal.

"We expect a more sustained growth uptick after Q3 once political stability has been established and aided also by steady export growth. We expect GDP to average at 4.7 per cent in FY14, down from 5 per cent in FY13, before it picks up again to 5 per cent," foreign brokerage Nomura said.

Its counterpart HSBC said the data "has a positive surprise and suggests that underlying growth conditions are not as weak as previously feared."

"A further recovery in annual GDP will prove difficult in coming quarters. It will, essentially, be made difficult by the washing out of the monsoon effect on agriculture and electricity production, normalisation of net exports, and possibly larger drag from stepped up fiscal consolidation efforts," HSBC said.

It can be noted that the government front-loaded its expenditure and exhausted up to 84 per cent of the spending for in the first seven months of the fiscal. To display its fiscal consolidation resolve, it will be forced to cut expenditure in the latter part of the fiscal, which can have a negative impact on growth.

Official data released on Friday said after sluggish growth in Q1, the economy grew by 4.8 per cent in Q2 driven by improved performance of farm, manufacturing, construction and services sectors.

All the analysts were unanimous in attributing the pick up in growth to the performance of the farm sector, which showed a healthy growth on the back of good monsoon. There was also unanimity in expressing concern for the dip in services sector growth.

SBI termed services sector growth of 5.9 per cent as "disappointing", noting the last time growth dipped to under 6 per cent was in Q4 of FY01.

"The real challenge is propping up a service sector growth in excess of 6-6.5 per cent for FY14," it said.

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