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Q2 GDP growth shows surprising resilience: Is worst over for Indian economy?

Q2 GDP growth shows surprising resilience: Is worst over for Indian economy?

India's Q2 GDP number showed surprising resilience with contraction of only 7.5 per cent in real terms, while the most astonishing number was the positive growth in manufacturing sector, says SBI in its research report

India's GDP fell 7.5 per cent during September quarter India's GDP fell 7.5 per cent during September quarter

Contracting for the second consecutive quarter, India's GDP fell 7.5 per cent during September quarter, albeit much slower than 23.9 per cent decline registered in June quarter, signalling a rebound. The better than expected growth was primarily due to significant rebound in the sectors like manufacturing, construction and 'trade, hotels, transport, communication & services related to broadcasting'.

Commenting on India's Q2 GDP growth, SBI Research, in its new Ecowrap report, said the number showed surprising resilience with contraction of only 7.5 per cent in real terms, while the most astonishing number was the positive growth in manufacturing sector.

Based on the current trends, SBI believes that India's Q3 FY21 real GDP growth would be tad positive. "The Q4 GDP growth would definitely be in positive territory. However, about the whole year growth one fact is certain that it will be in negative zone," it said.

Earlier this month, economist at SBI had pegged India's September quarter GDP growth at -10.7% from earlier projection of -12.5% on positive global events and reduction in losses.

"With improvement in manufacturing, due to lifting of lockdown measures GDP contraction has slowed down significantly. Agriculture sector continued to perform well with growth at 3.4 per cent. Services remained in the negative territory, although the decline was contained as 'trade, hotels, transport, communication & services' related to broadcasting showed recovery," SBI report noted.

The report noted that the recent measures that the government has taken are in the right direction and should be pursued to further spur the economic momentum. "Economic momentum as given by the business activity index shows steady improvement in the latest week after a temporary blip witnessed during the Diwali week owing to holidays. The SBI Business Activity index has jumped to the highest level since 9 March," it said.

As of now GDP growth data for Q3 2020 has been released (including India) for 49 countries. Compared to Q2 FY20, the GDP growth has improved significantly in Q3 2020. Barring China, the world's second-largest economy, all other major economies continued to struggle with COVID-19 pandemic and restrictions on activity. In the July-September quarter of 2020, Chinese economy grew by 4.9 per cent compared to 3.2 per cent in the previous quarter.  UK was the worst performer among major economies recording 9.6 per cent contraction.

"In Q2, 27 economies exhibited decline of more than 20 per cent but in Q3 only 3 economies fell into this range. Most of the economies grew in the range of negative 0-10 per cent in Q3 2020 (44 as compared to 20). The average decline of these 49 economies is 12.4 per cent in Q3 2020 as compared to 5.6 per cent decline in Q2," SBI report noted.

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