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Q3 GDP growth to be announced Friday; SBI report warns of coronavirus impact

India's GDP growth will remain flat at over six years low of 4.5 per cent in Q3 of FY2019-20, says SBI Ecowrap report

Chitranjan Kumar   New Delhi     Last Updated: February 26, 2020  | 22:07 IST
Q3 GDP growth to be announced Friday; SBI report warns of coronavirus impact
SBI Ecowrap revises up its FY20 growth estimate to 4.7 per cent from the earlier estimate of 4.6 per cent

Two-days ahead of the release of the gross domestic product (GDP) growth for the December quarter, economists at SBI say the growth slowdown appears far from over as domestic consumption remains fragile. They also warned that Indian economy may be impacted by coronavirus epidemic due to its high dependency on Chinese imports for various goods.

According to SBI Ecowrap latest report, India's GDP growth will remain flat at over six years low of 4.5 per cent in Q3 of FY2019-20. The agency, however, revised up its FY20 growth estimate to 4.7 per cent from the earlier estimate of 4.6 per cent because of the base effect triggered by a downward revision in the FY2018-19 growth number by the government.

Growth in the GDP slowed to over a six-year low of 4.5 percent in the second quarter (Q2) of FY20 due to subdued expansion in agriculture, manufacturing, and government expenditure.

The report highlighted that weak demand, slowdown in consumption, trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity.

The report said its high frequency leading indicator, which analyses inputs from 33 various indicators, signalled that growth rate fell sharply to 22 per cent in Q3 FY20, compared to 65 per cent in Q1 FY19.

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The agency expects the gap between gross value added (GVA) and GDP to widen further in FY20, citing a slowdown in the transfer of government payments. The GVA is a measure of the value of goods and services produced in a sector of an economy.

"Interestingly, with the FY19 GDP growth being revised downwards steeply to 6.1 per cent in FY19 it indicates that the growth slowdown was much more significantly entrenched and had started from April 17 onwards / FY18 after reaching a peak of 8.3 per cent in FY17 and only worsened in FY19 (post the ILF&S crisis) and in FY20 it has reached its nadir with growth projected at 5 per cent by CSO (with a downward bias)," the SBI report said.

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Raising concerns over coronavirus outbreak, the agency said "the economic impact is expected to accrue from supply chain risk which may link up with exports as in pharmaceutical sectors". Direct exports of commodities like cotton, diamonds to Hong Kong, and import of auto parts and certain items critical to solar projects may see temporary disruption, it said.

It also added that poultry sales have seen some impact although the virus is not of avian origin.

April-December 2019 data for India's imports showed that there were 19 Harmonised System (HS) categories in which China had more than half the share of imports and these were mostly consumer goods.

"With China, in the grip of Coronavirus, immediately finding other markets for imports of these commodities is thus going to be difficult. This can impact local importers and in turn consumers adversely," SBI report said.

SBI has also revised downward the global economic outlook in wake of the spread of COVID-19 virus. The outbreak of the virus in South Korea (977 cases) and in Italy (229 cases) is expected to cause a growth erosion of 100 basis points (bps) in China alone, it said.

"The estimates can vary but the ripple effect will be felt on global demand which will include disruption in production, disruption in raw material inputs etc," it added.

Globally, in the third quarter of 2019, growth across emerging market economies was also weaker, largely due to country-specific shocks weighing on domestic demand. The advanced economy group also slowed broadly.

While government is taking measures to contain economic slowdown, economists have called for further aggressive policy changes. The third quarter economic numbers are due on February 28.

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