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SBI report says GDP figure is a surprisingly positive number

NEW DELHI: The gross domestic product (GDP) figures released by the Center on Tuesday did not disappoint, instead inspiring markets, economists at State Bank of India (SBI) said in a report.
The Indian economy grew by 8.7% in the 2021-22 financial year compared with the 8.9% forecasted by the second enhanced estimate released by the government in February.

GDP data for the first, second and third quarters also had minimal revisions.
“Sequentially seasonally adjusted GDP growth was lower than past Q4 non-seasonally adjusted GDP growth,” the report said.
In Q4 FY22, real GDP growth was 6.7% quarter-on-quarter (qoq), yet seasonally adjusted real GDP growth was only 0.71%, showing only a modest improvement over the previous quarter. with the previous quarter and lost growth momentum, it added.

The gap between nominal and real GDP increases
The report adds that the gap between nominal GDP growth and real GDP growth widened between Q2 FY20 and Q1 FY22 due to higher inflation.
It adjusted for Q2 and Q3 of FY22 but increased slightly in the final quarter of FY22.
The pace of deflation increased slightly to 10.4% yoy in Q4 FY22 from 9.8% in the previous two quarters.
In Fiscal Year 22, the growth rate in GDP deflation increased to 10% from 5.6% in FY21, wherein industry saw the highest growth in GDP deflation (14% yoy versus 1.7% yoy).

GDP Growth (2)

‘Commercial, hotel has not run out of wood’
Analyzing the performance of different sectors, the report said that trade, hospitality, transportation, communications and services are the only sectors that have not yet escaped the price of wood.
The absolute figure for the sector is still 10.3% or Rs 3.04 lakh below pre-pandemic levels, the report notes.
The SBI report said: “We believe that by Q1/23, the sector will hit/surpass pre-pandemic levels.

In Q4, apart from manufacturing, all other sectors saw positive growth. Production fell by 0.2% indicating a slight impact of the lockdown causing the Omicron variation. The construction industry also showed 2% growth.
Furthermore, agriculture grew by 3%, manufacturing and construction by 11.5% and 9% respectively.
GDP surpasses pre-pandemic levels
The report said India’s GDP – which lost Rs 9.57 lakh crore in FY21 compared to FY20 – increased by Rs 11.77 lakh in FY22.
It noted that GDP exceeded Rs 2.19 lakh crore in FY22, compared with Rs 20 and Rs 7.4k from FY19.
“If GDP for fiscal year 22 is compared to five years 20 – before the pandemic hit the economy – it is 1.5% higher,” the SBI economists said.
On the spending front, both private and government final consumption spending surpassed pre-pandemic levels of Rs 1.2 lakh crore and Rs 0.93 lakh crore respectively.
While private sector final consumer spending increased 7.9% in FY22 from a decline in FY21, government final consumer spending fell to 2.6 % in FY22 compared to an increase of 3.6% in FY21.
Global outlook
Economists at SBI believe that the global economic outlook is being influenced by downside risks posed by the ongoing geopolitical crisis and its impact on trade, output and prices.
They argue that the sharp increase in the prices of most commodities and the significant tightening of financial conditions due to pre-emptive monetary policy actions and high inflation are raising concerns about financial stability.
The World economic outlook (WEO) cut its global growth forecast for 2022 from its January 2022 forecast by 0.8 percentage points to 3.6%. China’s economy remained in a deep slump in May as shutdowns continued to weigh on activity. The downside correction will be more pronounced for emerging and developing economies than for advanced economies.

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