Q4 GDP growth may be less than 3%: SBI study flags 'forecaster's nightmare'

Lender's chief economic advisor says projection for economy is clouded by significant uncertainties.

India’s real gross domestic product (GDP) could grow by around 2.7 per cent in the January-March quarter, said Soumya Kanti Ghosh, State Bank of India’s chief economic advisor, in a report on Thursday.

He expects GDP growth in Financial Year 2021-22 (FY22) to be around 8.5 percent, but warns that Q4 numbers could shift considerably based on revisions of previous quarters.

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“Q4 FY22 GDP numbers are due for release on 31 May and it is difficult to comprehend the numbers as a spate of customary quarterly revisions in FY22 could make it a forecaster’s nightmare. We are projecting GDP growth for FY22 at 8.5 percent and Q4 FY22 at 2.7 percent,” Ghosh said in his latest analyst report.

Ghosh said that Q4 projection is clouded by significant uncertainties, as even a 1 percent downward revision in Q1 FY22 GDP estimates, all other things remaining unchanged, could push Q4 GDP growth to 3.8 percent.

“The other big puzzle could be the gap between GVA and GDP numbers in Q4 given the strong growth in tax collections. This could push up the GDP number significantly, even as GVA might be much lower,” he said.

“We believe that downward adjustments in Q1, Q2, Q3 numbers could have a soothing impact on Q4 GDP numbers. Every Rs 10,000 crore revision adds / subtracts 7 basis points from GDP growth.”

Ghosh said that early trends of Q4FY22 results from corporates in the listed space, reported better growth numbers across parameters as compared to the same period in FY21 albeit contraction in operating margins took place due to higher input cost owing to inflationary pressures.

Sectors such as Steel, FMCG, Chemicals, IT-Software, Auto Ancillary, Paper, etc. reported better growth numbers. However, sector such as Automobile, Cement, Capital Goods – Electrical Equipment, Edible Oil etc, though they reported growth in top line in Q4FY22, registered negative growth in PAT, as compared to Q4 FY21.

“GDP growth is marking an abrupt reversal in major economies like U.S, France, Italy, Sweden, etc. The U.S. economy unexpectedly contracted in the Q1 2022 (on sequential basis) amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government. This is the first decline in GDP since the short and sharp pandemic recession nearly two years ago,” Ghosh said.

Ghosh said that investors globally are already wary of rising inflationary pressures and certain economic data including new jobless claims rising to a 4-month high and negative leading index have further sparked concerns that pricing pressures are starting to now take a toll on economic growth.