India's economy lost momentum in the final quarter of 2021, with growth slowing from the previous two quarters, according to data released on Monday, as rising fears that rising costs following Russia's invasion of Ukraine would further weaken economic growth.
Citing Reuters on Monday (28/2), official data showed gross domestic product rose 5.4% year on year (yoy) in October-December, less than the 6% forecast by economists in a Reuters poll, and under revised up 8.5% growth in July-September and 20.3% expansion in April-June.
"The growth figures are really disappointing," said Sujan Hajra, chief economist at Mumbai-based Anand Rathi Securities, citing weak rural consumer demand and investment.
India, which meets nearly 80% of its oil needs through imports, is likely to face a widening trade deficit, a weaker rupee and higher inflation after crude prices soared above $100 a barrel, with a hit to growth seen as a concern. main.
"Given geopolitical instability and crude oil prices, we think fiscal and monetary policy accommodation will continue," Hajra said.
A 10% increase in oil prices could cut 0.2 percentage point off India's GDP growth while adding 0.3 to 0.4 percentage point to retail inflation, according to Nomura's forecast.
The Reserve Bank of India has cut its main repo rate by 115 basis points since March 2020 to soften the blow from the coronavirus pandemic and keep interest rates low to support the economic recovery.
However, that recovery, already stalled amid weak consumer demand and private investment, slowed further when a third wave of coronavirus infections hit Asia's third-largest economy last month.
Consumer spending growth, the main driver, slowed to 7.0% from a year earlier in the October-December quarter from a revised 10.2% in the previous quarter, data Monday showed.
Manufacturing slowed to 0.2% growth from a revised 5.6% expansion in the previous quarter while the construction sector contracted 2.8% following 8.2% growth in the previous quarter.
The government also cut its growth forecast for the 2021/22 fiscal year ending March 31 to 8.9% from 9.2% seen in January as Covid-19-related restrictions weighed on activity earlier this year.
Investment growth slowed to just 2.0% annually compared to a revised 14.6% increase in the previous quarter, with state spending slowing to 3.4% growth after a 9.3% rise in July-September.
Sakshi Gupta, senior economist at HDFC Bank, said India is likely to feel the ripple effects of widening sanctions against Russia.
"We see a 20-30 basis point downside risk from our baseline estimate," he said. For now HDFC sees the economy growing 8.2% in the next fiscal year.
