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MOSL: ECOSCOPE-Economic activity growth recovers in Dec’18-However, expect GDP growth to weaken to ~6.5% in 3QFY19

ECOSCOPE: Economic activity growth recovers in Dec’18; However, expect GDP growth to weaken to ~6.5% in 3QFY19

 

• Our in-house Economic Activity Index (EAI) for India's real GDP (called EAI-GDP) showed a growth of 6.5% YoY in Dec'18, vis-à-vis 13-month slowest growth of 2.3% YoY in Nov'18. EAI-GDP growth averaged ~5% in 3QFY19, much lower than 6.5% in 2QFY19 and ~8.5% in 1QFY19.
• The month-on-month (MoM) acceleration in our EAI-GDP was almost entirely due to consumption, which was supported by ~21% YoY growth in fiscal spending. Investments, on the other hand, posted sub-1% YoY growth for the second consecutive month in Dec'18.
• EAI-GVA index grew at 14-month slowest pace of 6.5% YoY in Dec'18, broadly unchanged from Nov'18. Weaker GVA growth was led by 8-month slowest growth in the services sector.
• Overall, weaker growth in 3QFY19 was on expected lines as the favorable base has faded. We had forecasted that real GDP growth will weaken further to ~6.5% in 3QFY19 - implying ~7% growth in FY19 - lower than the market consensus and the RBI's projection of ~7.4%. But, the recently released revised data for FY16-18 has created some uncertainty in our predictions, as the new 1HFY19 data (and quarterly data for FY18) will be published this month-end.