Comments on GDP numbers by Ms. Radhika Rao, India Economist, DBS Bank

2Q FY18 GDP growth pace was along expectations, as the economy pulled the brakes on five consecutive quarters of slowdown. Consumption was the main driver despite moderating from 1Q. The pace of growth is still higher than the headline growth, which likely got a hand from an early festive boost and easing impact of GST/ demonetisation impact. An important watch factor is the non-agriculture, non-government spending, which has accelerated for the second consecutive quarter, suggesting a pick-up in the underlying momentum in the industrial/ private sector. This signals some stabilisation due to post-GST restocking as well as to meet festive demand. The labour intensive construction and agriculture sectors however eased, reinforcing the need to concentrate on job creation efforts. Government spending was curtailed, as we expected, to contain further deterioration in the fiscal deficit math. One aspect that will be watched with interest over the next few quarters is the performance of trade/ hotels component, given the likelihood that actual sales tax collections (which has been subsumed by GST) might be stronger than what is now estimated through proxy indicators. This, according to the Statistics agency, might lend an upside bias to the 2Q GDP numbers in upcoming revisions. 2H growth is likely to average between 6.5-7%, assuming further improvement in consumption, further stabilisation in industrial, trade, and investment activity. This will be needed to offset the likely smaller role by government expenditure. Rising oil prices will temper the net exports contribution to overall growth.

With limited headroom for fiscal stimulus, pressure for monetary support is likely to increase. However the evolving inflation, fiscal and oil dynamics are likely to leave the RBI wary of lowering rates further. Global central banks are also mulling over policy normalisation moves, with the US Fed expected to hike rates for a third time this year, in December. Against this backdrop, we expect the RBI to refrain from further rate cuts this week and for rest of FY18.

Source : Equity Bulls

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