India’s economy grew probably at its fastest pace in a year in the June quarter

NEW DELHI (Reuters) – India’s economy likely hit its fastest annual growth in a year in the April-June quarter, economists said, expecting the pace to slow sharply this quarter and the next two as higher interest rates help affect economic activity.

Gross domestic product (GDP) in the three months ended June 30 was likely 15.2% higher than a year earlier, a Reuters poll showed this week. From January to March, GDP increased by 4.1% yoy.

The last time India’s GDP posted higher annual growth was from April to June 2021, when it was 20.1% above last year’s pandemic-driven level.

Forecasts for the last quarter ranged from 9.0% to 21.5%. The official release is due on Wednesday at 1200 GMT.

The Reserve Bank of India (RBI) has hiked its benchmark repo rate by 140 basis points since May, including 50 basis points this month, while warning of the impact of a global slowdown on domestic growth prospects.

The latest Reuters poll showed economists expected growth to slow sharply this quarter to 6.2% a year before decelerating further to 4.5% in October-December.

Many economists expect another rate hike of around 50 basis points next month, followed by another 25 basis points thereafter.

Consumer spending, which accounts for nearly 55% of economic activity, has been hit hard after a surge in food and fuel prices, although monthly inflation has moderated over the past three months.

Two-wheeler sales are an indicator of the health of the economy. From April to June, it was 5.03 million units, higher than the same periods in 2021 and 2020 but down nearly a fifth from 2019, industry data showed.

Economists say such commonly available indicators show that India’s economy, the third largest in Asia, has so far held up well in the deteriorating conditions.

“More recent data suggests that resilience continued into the third quarter (July-September),” said Shilan Shah, India economist at Capital Economics, Singapore, noting that the economy is feeling the impact of the Omicron wave had withstood better in January-March than it had handled the previous wave of the pandemic.

The economy faces downside risks, however, as tighter monetary conditions and higher input costs could affect firms’ investment plans, Shah wrote in a note to clients last week.

A devaluation of the rupee
up more than 7% against the dollar this year has made imported items more expensive for consumers and businesses.

(Reporting by Manoj Kumar; Editing by Bradley Perrett)

Copyright 2022 Thomson Reuters.

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