Roadblocks Ahead To Lead To Slower Growth

Improving contact-intensive services amid stable urban consumption demand could continue at a slower pace for some more time, said Madhavi Arora, lead economist at Emkay Global Financial Services.

“However, our channel checks depict mixed demand trends during the recent festive season,” she cautioned.

Employment growth in the formal sector appears to be reducing. Additionally, subdued real rural wage growth may further impact rural consumption, according to Arora.

Capex indicators are healthy, with an added improvement in capacity utilisation and signs of new investment gradually coming in with capital goods production registering an uptick.

Yet, the momentum of the recovery is still below full strength, warranting policy support and a push of government capex.

“We retain GDP growth of 7% for FY23 while acknowledging rising downside risks to our forecast,” said Madhavi.

High-frequency indicators in the third quarter of the current fiscal have held up so far, indicating resilience in growth, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

With favourable base effects disappearing, growth is expected to normalise over the coming quarters, he said. Additionally, lower crude oil prices should begin contributing positively to terms of trade.

However, headwinds to the Indian economy are steadily increasing due to the lag effect of monetary policy tightening and the looming global slowdown or recession affecting domestic demand.

Exports are already reflecting a slowdown, with October’s print falling to the first sub-$30 billion reading since February 2021. Additionally, private sector capex is likely to be delayed given the uncertain global and domestic demand conditions.

“Factoring in the latest trends, we maintain FY23 and FY24 real GDP growth estimates at 6.8% and 6%, respectively, with downside risks to our estimates,” Rakshit said.