EUR 125.00 For Business Accounts Only

MOSL: FUEL OR ENGINES (ECONOMY)-FY18 real GDP growth poised for a sharp downward revision

FUEL OR ENGINES (ECONOMY): FY18 real GDP growth poised for a sharp downward revision; Narrative will change with better – rather than weaker – growth in FY19

 

• The Central Statistics Office’s (CSO) latest official estimates suggest that FY18 was a turnaround year with three key highlights – (1) Real spending by the government grew at a record-high pace of 14.4% in FY18, almost double the average growth of 7.5% in the preceding three years. Fiscal spending, thus, contributed as much as ~2pp (or 26.4%) to real GDP growth in FY18. (2) Real GDP growth exceeded 7% for the fourth consecutive year in FY18, subduing fears of a demonetization-led slowdown. (3) Growth in investments outpaced that in consumption for the first time in at least six years. Consequently, the investment (as a percentage of GDP) rate picked up for the first time in seven years in FY18.
• However, our estimates vary significantly with those released by the CSO in case of the first two of the aforementioned three highlights. Having said that, we highlight that our estimates are drawn from separate data for the center and the states, which are not provided by the CSO. Our of states’ 2019-20 budgets suggests that real spending of the government (center + states) grew only ~6% YoY in FY18 – much lower than the CSO’s estimate of 14.4%. If so, lower fiscal spending implies a likely downward revision of more than 1pp in real GDP growth (to ~6%) in FY18. Investments, however, grew faster than consumption for the first time in six years in FY18, and thus, the investment rate picked up for the first time since FY12.