Anticipated slowdown in second half of FY24 to play out strongly in Q4

The anticipated slowdown in the second half of FY24 is expected to play out more strongly in Q4, with a congregation of global slowdown, downside to Rabi output, rationalization of government spending as well as impact of domestic monetary tightening playing out, Acuite Rating in its note, said on Monday. 

Throwing light on growth, Acuite Rating said further that the stronger than anticipated growth in FY24 has been an outcome of varied themes-thanks to the support from government spending that has been higher than anticipated and Capex has continued to grow in double-digits for the third consecutive fiscal year, up 31 per cent YoY on Apr-Nov in 2023.

The note added further that revenue expenditure too is estimated to offer incremental support as seen in growth in government consumption. “This could perhaps retain the traction ahead of general elections in early FY25.  Two, deflation in WPI, averaging at 1.3 per cent YoY over Apr-Nov FY24, has provided a statistical boost to growth of Manufacturing, Mining & quarrying, and Construction sectors,” the note stated further. 

According to the Acuite Rating,  although the slowdown in global demand is seen to be weighing upon exports, the drag on GDP from net exports is seen to be reducing on account of the faster deceleration in imports. 

“The Net Exports/GDP ratio is estimated at 2.0 per cent in FY24 vs 3.7 per cent in FY23. On the other hand, growth in private consumption at 4.4 per cent in FY24, marks its slowest pace in the last two decades (excluding the Covid year of FY21),” the note read. 

While contact intensive services are facing normalization at a fast pace, demand for goods may face headwinds from monetary tightening as well as RBI regulations on unsecured lending. “Further, one must bear in mind that NSO’s FAE are projections based on 6-8 months of actual data,” the note cautioned.