Recovery has slowed: Ukraine war could dampen growth further


Recovery has slowed: Ukraine war could dampen growth further

Data released by the National Statistical Office (NSO) Monday showed that the Indian economy grew at 5.4 per cent in the third quarter of the ongoing financial year (2021-22). For the full year, the NSO now expects the economy to grow at 8.9 per cent, marginally lower than its earlier estimate of 9.2 per cent. These latest numbers imply that economic growth is likely to slow down further to 4.8 per cent in the fourth quarter (January-March). Thus, over the second half of this year, growth is now expected to average only 5.1 per cent, down from a base-effect induced 14.4 per cent in the first half. This is lower than the RBI’s estimate, which in the December monetary policy committee meeting, had retained its projection for the full year at 9.5 per cent, while projecting growth at 6.6 per cent in the third quarter and 6 per cent in the fourth quarter.

All of this, writes the Indian Express  “implies that the pace of recovery has moderated considerably against what was expected earlier.

“The disaggregated data shows the momentum dipping across sectors. The manufacturing sector has barely registered a rise. Value added by the sector grew at just 0.2 per cent in the third quarter. Construction activities have in fact contracted by 2.8 per cent in the third quarter. Further, the labour intensive trade, hotels, transport and communications sector — despite growing at 11.6 per cent in 2021-22 — will not be able to recover to pre-Covid levels (in real terms). Similarly, the outlook for both private consumption and investment activity remains muted. Private consumption which grew at 7 per cent in the third quarter, is expected to slow down to 1.5 per cent in the fourth quarter. Similarly, gross fixed capital formation, which essentially connotes investment activity in the economy, is expected to grow at just around 1.6 per cent in the second half of the year.”

Geopolitical risks to economy: The ongoing Ukraine crisis will further dampen growth. Increase in commodity prices, especially crude oil, will impact both businesses and households, though the effects may be visible with a lag. This would imply a downside risk to the fourth quarter and the annual growth estimates.

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