Q4 GVA growth may improve to 7-7.3% from 6.7% in Q3: economists

The economic activity is likely to have gained momentum in the fourth quarter (Q4) of 2017-18 (FY18), notwithstanding the deceleration in industrial growth in March. 

Economists expect gross value added (GVA) to grow between 7-7.3 per cent in Q4FY18, up from 6.7 per cent in the third quarter (Q3) of FY18. Gross domestic product (GDP) is expected to grow between 7.2-7.4 per cent in Q4FY18, from 7.2 per cent in Q3FY18.

By comparison, working backward from the second Advance Estimates released by the Central Statistics Office (CSO), GVA was pegged to grow at 6.9 per cent in Q4FY18, while GDP growth was projected at 7.1 per cent. The Q4 results will be released by the CSO at the end of the month. 

 
Industrial activity, as measured by the index of industrial production (IIP), slowed to 4.4 per cent in March, after growing for four consecutive months at above 7 per cent.

For the entire fourth quarter, IIP grew by 6.2 per cent, up from 5.9 per cent in Q3FY18 and 3.3 per cent in the second quarter (Q2) of FY18, reflecting a steady pickup in industrial activity, as the effects of the goods and services tax (GST) wore off. 

“The average 6.2 per cent IIP growth in Q4FY18, in conjunction with healthy earnings being reported by corporates in various sectors, is likely to support a continued uptick in GVA growth for the just-concluded quarter, despite the adverse impact of higher commodity prices on earnings,” said Aditi Nayar, principal economist at Icra. Icra expects GVA growth at 7.3 per cent in Q4FY18. 

Manufacturing, which accounts for 77.6 per cent of IIP, grew by 7.1 per cent in Q4FY18, marginally higher than 7 per cent in Q3FY18. It had grown by a mere 2.5 per cent in Q2FY18.

In comparison, based on the second Advance Estimates, manufacturing growth for Q4FY18 works out to 7.2 per cent, down from 8.1 per cent in Q3FY18. 

“Industrial growth in Q4FY18 is likely to be slightly better than Q3FY18. Electricity is likely to outperform, while mining and construction are likely to witness sluggish growth,” said Devendra Pant, chief economist at India Ratings and Research (Ind-Ra). Pant expects GVA to be lower at 7 per cent in Q4FY18. In a research note, rating agency CARE had noted that “growth was supported by the restocking activities undertaken by the sector after the implementation of the GST. Out of the total 23 industries group, 12 industries recorded positive growth in FY18.”

The construction sector could benefit from the base effect. However, leading economic indicators for the sector paint a mixed picture. 
“The key components of construction displayed a mixed trend in Q4FY18, relative to Q3FY18, with a moderation in growth of steel output, but a sharp improvement in the same for cement,” noted Nayar.  Icra expects industry, including construction, to grow at 7.6 per cent in Q4FY18, up from 6.8 per cent in Q3FY18.

On the services side, leading economic indicators such as railway freight, diesel consumption, and cargo handling suggest stronger growth in Q4FY18. However, the central government’s non-interest revenue expenditure slowed in January and February, compared to the previous year. 

On the expenditure side, gross fixed capital formation may well continue to show an upward trajectory. 

The capital goods segment in IIP, a leading indicator of investment, grew by a healthy 9 per cent in Q4FY18, up from 7.5 per cent in Q3FY18. The segment had grown by 4.9 per cent in Q2FY18. The CSO data showed that gross fixed capital formation grew by 12 per cent in Q3FY18, up from 6.9 per cent in Q2FY18.

On private consumption, IIP data sends conflicting signals. While the consumer durables segment grew by 5.9 per cent in Q4FY18, after contracting by 1.5 per cent in Q3FY18, the consumer non-durables segment slowed to 9.8 per cent in Q4, after growing by 16.2 per cent in the previous quarter. 

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