Q4FY22 growth may decline to 2.7%: SBI

Projecting a GDP growth of 8.5 per cent for FY22, the SBI report said the beneficial effects of the rapid ebb of infections have been overwhelmed by the geopolitical conflagration since February 2022. “CPI inflation edged above the upper tolerance band as unfavourable base effects combine with the onset of supply shocks as conflict escalates,” it said.

Against this backdrop, the Q4 GDP numbers are expected to be much lower than Q3 indicating a continuous deceleration in growth since the starting of the year. The NSO imputed Q4 FY22 growth is 4.8 per cent, and GVA growth at 4.1 per cent.

It said the Indian economy’s recovery remains resilient, although risks stemming from global developments have thwarted the momentum. Inflation risks have become more accentuated in recent months. The increase in international commodity prices also imparts a net term of trade shock that is widening the trade and current account deficits, the SBI report said.

“Nevertheless, we believe FY22 GDP numbers could move now closer to 8.5 per cent as Q4GDP numbers as per SBI nowcasting Model. The other big puzzle could be the gap between GVA and GDP numbers in Q4 given the strong growth in tax collections,” the report said. This could push up the GDP number significantly, even as GVA might be much lower.

“We believe the GDP projection for Q4 FY22 is clouded by significant uncertainties,” SBI study said.

For example, even a one per cent downward revision in Q1 GDP estimates of FY22 from 20.3 per cent, all other things remaining unchanged could push Q4 GDP growth to 3.8 per cent. The CSO had projected Q4 GDP at Rs 41.04 lakh crore and FY22 real GDP growth at Rs 147.7 lakh crore, an improvement of 1.7 per cent over pre pandemic levels.

The SBI Nowcasting model with unchanged quarterly numbers pegs the growth rate of Q4GDP at Rs 40 lakh crores, which is lower by Rs 1 lakh crores from the CSO preliminary projections. “We believe that downward adjustments in Q1, Q2 and Q3 numbers could have a soothing impact on Q4 GDP numbers,” the report said.

Every Rs 10,000 crore revision adds or subtracts 7 basis points from GDP growth.

Beyond the numbers, early trend of Q4FY22 results from corporate, in the listed space, reported better growth numbers across parameters as compared to Q4FY21 albeit contraction in operating margin due to higher input cost. Sectors such as steel, FMCG, chemicals, IT software, auto ancillary and paper reported better growth numbers. However, sectors such as automobile, cement, capital goods – electrical equipment and edible oil reported growth in top line in Q4FY22, but registered negative growth in PAT, it said.

Meanwhile, globally, while the average real GDP growth in Q1 2022 for 25 economies at 5.5 per cent is a tad higher than the preceding quarter, GDP growth is marking an abrupt reversal in major economies (US, France, Italy and Sweden). The US economy unexpectedly contracted in the Q1 2022 (on sequential basis) amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government, it said.

This is the first decline in GDP since the short and sharp pandemic recession nearly two years ago. Global financial volatility continues amidst the prolonged Russia-Ukraine crisis. “However, after touching the level of 3 per cent, that is double its level at the start of the year and the highest since December 2018, US 10-year yield has declined in the recent weeks mainly on account of rising fears of recession,” the report said.

Investors are already wary of rising inflationary pressures. However, certain economic data including new jobless claims rising to a 4-month high and negative leading index have further sparked concerns that pricing pressures are starting to now take a toll on economic growth.