Economic activity has slowed since Q3FY22: SBI report
The Economic Research Department (ERD) of the State Bank of India has forecast GDP growth of 8.5% for FY22, with growth of 2.7% for the fourth quarter (Jan-March).
The ERD, however, believes that the GDP projection for the fourth quarter of FY22 is clouded by significant uncertainties. For example, even a 1% downward revision to GDP estimates for the first quarter (April-June) of FY22 from 20.3%, all other things remaining unchanged, could push GDP growth in the fourth quarter at 3.8%.
“FY22 fourth quarter GDP figures due May 31 st and it’s hard to make sense of the numbers because a series of the usual quarterly revisions in FY22 (if bigger) on May 31 could make it a nightmare for forecasters.
“Nevertheless, we believe FY22 GDP figures could now approach 8.5%…according to the SBI nowcasting model,” Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI said in a statement. ERD’s “Ecowrap” report.
The report said economic activity, which strengthened in the second quarter (July-September) of FY22 with the ebb of the second wave, has lost momentum since the third quarter, exacerbated by the spread of the Omicron variant in the fourth quarter.
The ERD noted that the beneficial effects of the rapid decline in infections have however been overwhelmed by the geopolitical conflagration since February 2022. CPI inflation has slightly exceeded the upper tolerance range (of 6% of the policy committee monetary policy) as adverse base effects combine with the emergence of supply shocks as the conflict escalates.
Against this backdrop, Q4 GDP numbers are expected to be much lower than Q3 (by 5.4%), indicating a continued deceleration in growth since the start of FY22, according to the ERD’s assessment. .
He observed that the other big conundrum could be the discrepancy between the GVA and GDP figures in the fourth quarter given the strong growth in tax revenues. This could significantly increase the GDP figure, although the GVA could be much lower.
The report noted that the CSO had forecast fourth quarter GDP at ₹41.04 lakh crore and real GDP growth for FY22 at ₹147.7 lakh crore, an improvement of 1.7% on to pre-pandemic levels.
The SBI Nowcasting model, with quarterly figures unchanged, pegs the Q4GDP growth rate at ₹40 lakh crore, down ₹1 lakh crore from the CSO’s preliminary projections.
“We believe the downward adjustments to Q1, Q2 and Q3 figures could have a calming impact on Q4 GDP figures. Each ₹10,000 crore revision adds/subtracts 7 basis points to GDP growth. GDP,” Ghosh said.
The ERD expects the RBI to hike rates at the June policy meeting and the cumulative rate hike in June and August is expected to be 75 basis points.
Referring to the debate regarding the coordination of monetary and fiscal policies, Ghosh pointed out that the best thing that has emerged during the pandemic is the coordinated policy response of the government and the RBI to stave off the pandemic and maintain inflation.
May 26, 2022