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Below the Perspective on GDP Data by Mr. Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services

Real GDP growth at a shocker 5.4% YoY in 2QFY25, much lower than our forecast of 6.2%, market consensus of 6.5% and RBI forecasts of 6.7%. Are we staring at stagflation?

* Real GVA growth was 5.6% in 2Q, led by weak manufacturing and trade sector, although construction and social services grew faster (than expected).

* Nominal GDP growth was just 8% in 2Q, lower than our forecast of 8.6%. GDP deflator was 2.5% YoY last quarter, in line with our forecast.

*  GDP internals suggest that real consumption growth weakened to 5.7% YoY in 2Q vs 6.3%/4.1% in 1QFY25/2QFY24, led by a QoQ slowdown in private consumption (6% YoY in 2Q vs 7.4% in 1Q). Investments grew 5.4% vs 7.5%/11.6% in 1Q/2Q. Interestingly, real net exports added 1.5pp to real GDP growth, although it worsened to -3.3% of GDP in 2Q in nominal terms.

*  Overall, real/nominal growth is way below expectations, while will lead to massive downgrades across the street (as we have been highlighting). At the same time, we continue to expect ~6% real GDP growth in FY25, only slightly lower than 6.1% we forecasted three months ago.

* What does it mean for the RBI policy next week? Well, we don't think there will be any action next week since inflation is at ~6%, though the probability vis-a-vis a day ago has certainly risen. Feb'25 though is very much live, provided inflation comes off.

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