State Bank of India’s economic research department (ERD) has  projected FY22 GDP growth at 8.5 per cent, with Q4 (January-March) FY22 growth being forecast at 2.7 per cent.

The ERD, however, believes the GDP projection for Q4 FY22 is clouded by significant uncertainties. For example, even an 1 per cent downward revision in Q1 (April-June) GDP estimates of FY22 from 20.3 per cent, all other things remaining unchanged, could push Q4 GDP growth to 3.8 per cent.

“Q4 FY22 GDP numbers are due for release on May 31st and it is difficult to comprehend the numbers as a spate of customary quarterly revisions in FY22 (if it is on larger side) on May 31st could make it a forecaster’s nightmare.

“Nevertheless, we believe FY22 GDP numbers could move now closer to 8.5 per cent...as per SBI nowcasting Model,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI said in ERD’s “Ecowrap” report.

The report said economic activity, which gained strength in Q2 (July-September) FY22 with the ebbing of the second wave, has lost pace since Q3, exacerbated by the spread of the Omicron variant in Q4.

Geopolitical conflagration

ERD noted that the beneficial effects of the rapid ebb of infections have, however, been overwhelmed by the geopolitical conflagration since February 2022. CPI inflation edged above the (monetary policy committee’s) upper tolerance band (of 6 per cent) as unfavourable base effects combine with the onset of supply shocks as conflict escalates. 

Against this backdrop, the Q4 GDP numbers are expected to be much lower than Q3 (of 5.4 per cent), indicating a continuous deceleration in growth since the starting of FY22, as per ERD’s assessment.

He observed that the other big puzzle could be the gap between GVA and GDP numbers in Q4 given the strong growth in tax collections. This could push up the GDP number significantly, even as GVA might be much lower.

The report noted that CSO had projected Q4 GDP at ₹41.04 lakh crores and FY22 real GDP growth at ₹147.7 lakh crores, an improvement of 1.7 per cent over pre pandemic levels.

SBI Nowcasting model, with unchanged quarterly numbers, pegs the growth rate of Q4GDP at ₹40 lakh crores, that is lower by ₹1 lakh crores from the CSO preliminary projections.

“We believe that downward adjustments in Q1,Q2,Q3 numbers could have a soothing impact on Q4 GDP numbers. Every ₹10,000 crore revision adds / subtracts 7 basis points from GDP growth,” Ghosh said.

The ERD expects RBI to hike rates in the June policy meeting and the cumulative rate hike in June and August is likely to be 75 basis points.

Referring to the debate regarding the coordination of monetary and fiscal policy, Ghosh underscored that the best thing that has emerged during pandemic is the coordinated policy response by both the Government and RBI in staving off the pandemic and now inflation.

comment COMMENT NOW