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MOSL: ECOSCOPE-Real GDP growth weakens in 3QFY20; Could moderate further to ~4.5% this quarter

ECOSCOPE: Real GDP growth weakens in 3QFY20; Could moderate further to ~4.5% this quarter

 

• Real GVA/GDP grew 4.5%/4.7% YoY in 3QFY20, higher than our estimate. Nominal GDP growth stood at 7.7% compared to 6.4% in 2QFY20 and 11.4% in the year-ago period.
• While the CSO revised GDP/GVA growth to 5.6%/5.4% from 5.0%/4.9% for 1QFY20, the numbers for 2QFY20 were revised upward to 5.1%/4.8% from 4.5%/4.3%. This means that while majority of market participants were expecting an improvement in GDP growth in 3QFY20, revisions actually imply that growth has fallen, exactly in line with our expectation of weaker growth during the quarter.
• Weakness in real GDP growth was entirely led by investments, as consumption (largely driven by government spending) and net exports grew decently during the quarter. In fact, GDP growth excluding government consumption expenditure was at only 3.9% for 3QFY20. Further, external trade did well in 3QFY20 as the decline in imports was much steeper than exports, similar to that in the past two quarters.
• Weakness in GVA growth was primarily on account of a slump in industrial activity, as both agriculture and services sector growth accelerated in 3QFY20.
• Moreover, recently released fiscal deficit data showed that government spending declined 6.4% YoY in Jan'20. We expect fiscal spending to decline further in the coming two months of FY20, leading to its sharp decline in 4QFY20. Considering fiscal spending was the primary supporter of growth all this while, we expect real GDP to weaken further in the last quarter of the year and come in at ~4.5%. Interestingly, the CSO has retained its full-year FY20 growth forecast at 5%, indicating expectation of 4.7% growth in 4QFY20, similar to 3QFY20.