Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

The Sep 2017 GDP in Charts: 6.3% Growth But With a Falling Twelve Month Pattern

30 Nov 2017Deepak Shenoy2 min read

Quick Facts

What is "The Sep 2017 GDP in Charts: 6.3% Growth But With a Falling Twelve Month Pattern" about?
What category is this article in?: Charts And Analysis
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 30 November 2017.
How long does this article take to read?: 2 min read
What topics does this article cover?: GDP
What does the "The Sectors: Manufacturing to the rescue!" section say?: We would have fared badly if manufacturing had not moved up sharply. It's true that GST had impacted stuff in Q1, so manufacturing kinda sorta halted to allow GST to come into place (it started on July 1). And then, the output would have been higher to make up for the lost time. Mining too was impressive, and this also has some kind of GST impact, it seems. However, the growth in financials, personal services and construction have slowed. From a component standpoint, things have changed. Government expenditure, which drove a lot of growth earlier, has fallen to just 4%. Private expenditure, the biggest part of the chain (it's 60%+ of GDP) has been flat, and imports are up. Exports are pathetic and have been sub 2%!
What does the "The Problem: 4 Quarter GDP Growth is Falling" section say?: The trailing twelve month (TTM) GDP has actually been falling. We are of course at the lowest in three years, and one can make the argument that we can only go up from here. But, as a cantankerous old man, this doesn't sound like a great argument.
What does the "Inflation: Falling and Helping "Real" Growth" section say?: What helps is that inflation is falling again. At just 3.2% it's at a near-term low. A jump in inflation can hurt growth again.
What does the "And finally, Who made it happen?" section say?: From a sector perspective, we see that Trade and Transport, Financials and Manufacturing did the heavy lifting this time.
What does the "Our View" section say?: India is indeed growing, but the old time moves of 7-8% might be behind us. We might have to live with the 5-6% numbers for a while as the economy gets back on track. Markets of course will not care. It doesn't matter if it's even slightly negative; the rule is: only go up. So I wouldn't be reading too much negativity into this data. It's just so-so. We'll probably have to see until Gujarat elections if this GDP growth has actually translated into happiness for people. But speaking from an economic perspective, we have to fix the exports and keep manufacturing rolling.

The GDP release for the September quarter has been interesting. It shows a 6.3% growth, which, by itself, would be a good thing. But you have to consider a few things:

GST was a dampener for the economy in Q1. Therefore the Sep quarter should have had some revival in areas like manufacturing (which there has been)
The demonetization impact would have been painful for a few quarters, so by now we should be recovering from that damage.

With those tailwinds, the 6.3% is benign. And Nominal Growth - which is what growth is before you take out inflation - is at only 9.43%.

Let’s look deeper.

The Sectors: Manufacturing to the rescue!

We would have fared badly if manufacturing had not moved up sharply. It’s true that GST had impacted stuff in Q1, so manufacturing kinda sorta halted to allow GST to come into place (it started on July 1). And then, the output would have been higher to make up for the lost time.

Mining too was impressive, and this also has some kind of GST impact, it seems.

However, the growth in financials, personal services and construction have slowed.

From a **component standpoint, **things have changed.

Government expenditure, which drove a lot of growth earlier, has fallen to just 4%. Private expenditure, the biggest part of the chain (it’s 60%+ of GDP) has been flat, and imports are up. Exports are pathetic and have been sub 2%!

The Problem: 4 Quarter GDP Growth is Falling

The trailing twelve month (TTM) GDP has actually been falling. We are of course at the lowest in three years, and one can make the argument that we can only go up from here. But, as a cantankerous old man, this doesn’t sound like a great argument.

Inflation: Falling and Helping “Real” Growth

What helps is that inflation is falling again. At just 3.2% it’s at a near-term low. A jump in inflation can hurt growth again.

And finally, Who made it happen?

From a sector perspective, we see that Trade and Transport, Financials and Manufacturing did the heavy lifting this time.

Our View

India is indeed growing, but the old time moves of 7-8% might be behind us. We might have to live with the 5-6% numbers for a while as the economy gets back on track.

Markets of course will not care. It doesn’t matter if it’s even slightly negative; the rule is: only go up. So I wouldn’t be reading too much negativity into this data. It’s just so-so.

We’ll probably have to see until Gujarat elections if this GDP growth has actually translated into happiness for people. But speaking from an economic perspective, we have to fix the exports and keep manufacturing rolling.