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State Bank of India’s economic research department (ERD) has revised India’s full year (FY22) GDP growth downwards to 8.8 per cent from its earlier estimate of 9.3 per cent.
“This factors in the fatigue due to continued fight against the chimeric virus and the spillover of ripple effects intermingling in somewhat indecipherable ways,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, in the bank’s report “Ecowrap”.
“With this, the real GDP will be around ₹2.35 lakh crore/1.6 per cent more than the pre-pandemic FY20 real GDP of ₹145.69 lakh crore.
“The good thing though is a part of this growth will be front-loaded into FY23 with SBI GDP forecast at 8 per cent plus, higher than RBI and Government estimates at about 7.8 per cent or so,” said the report.
Referring to SBI’s nowcasting model forecasting GDP growth for Q3 FY22 to be 5.8 per cent, with a downward bias, Ghosh observed that this slower growth momentum reconfirms recent assertion that incipient growth recovery needs to be supported by accommodative policy longer than anticipated.
“We thus expect liquidity normalisation may be delayed. This could have a further softening impact on government security yields from current 6.7 per cent towards about 6.55 per cent or so,” the report noted.
Nowcasting Model
SBI’s ‘Nowcasting Model’ is based on 41 high-frequency indicators associated with industry activities, service activities and, global economy.
The report noted that recovery in domestic economic activity is yet to be broad-based, as private consumption remains at below pre-pandemic levels, though February has seen high frequency indicators gaining traction.
The high frequency indicators had suggested some weakening of demand in Q3 (October-December), also continuing to January 2022 reflecting the drag on contact-intensive services.
Rural demand indicators, say two-wheeler and tractor sales, have continued to decline since August 2021.
Amongst the urban demand indicators, consumer durables and passenger vehicle sales contracted in Q3 while domestic air traffic weakened in the wake of Omicron variant spread.
Investment activity is displaying a traction in pick up with merchandise exports remaining buoyant, according to the report.
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