SBI projects Q2 GDP growth of 5.8%, lower than other agencies’ estimates

Higher input costs weighed down manufacturing sector performance, it reckons

The Indian economy is likely to clock a GDP growth of just 5.8% in the second quarter of this year, State Bank of India (SBI) economists have estimated in a report. This is less than half the 13.5% uptick recorded in the April-to-June quarter.

Last week, economists at Bank of Baroda and rating agencies such as Crisil and ICRA had projected a 6.5% growth in the July to September quarter. The National Statistical Office will release its estimates for the economy’s Q2 performance on Wednesday.

“There is a wide divergence in market consensus regarding Q2 GDP numbers. Consensus estimates are at 6.1%,” the author, group chief economic adviser Soumya Kanti Ghosh, noted in the report

The bank’s own nowcasting model, which uses 30 high-frequency indicators and machine learning-based artificial neural networks, pegs GDP growth for Q2 at 5.8%. Economic activity, it said, had been declining between June and September 2022, but had increased in October, so the bank exuded more optimism about growth prospects in the ongoing third quarter.

“Q2 Manufacturing sector growth is likely be weak on the back of margin compression,” SBI said, pointing to a 14% year-on-year decline in earnings before interest, depreciation, tax and amortisation (EBIDTA) during the quarter among corporates outside the banking and financial services space. “Further, corporate margin seems to be under pressure, as reflected in results of around 3,000 listed entities ex BFSI, on account of higher input costs” he pointed out.

Mr. Ghosh, however, emphasised that there is ‘somehow a large disconnect between leading indicators and GDP growth’ since the pandemic’s onset. “Growth impulses continue to be strong and it may be better to look through the GDP headline numbers for a couple of quarters before arriving at a definitive conclusion about the growth trajectory,” he concluded.