The Economy Observer : Real GDP growth improves in 3QFY25 by Motilal Oswal Financial Services Ltd
Real GDP growth improves in 3QFY25
Expect 6.0-6.5% growth in 4Q; slower than the 7.6% estimated by the CSO
* Real GDP grew 6.2% in 3QFY25, higher than 5.6% in 2QFY25 (revised up from 5.4%) and 9.5% in 3QFY24. The number was better than our forecast of 5.7%, in line with the market consensus of 6.2%, but was lower than RBI's projection of 6.8%. The improvement in real GDP growth was mainly led by the six-quarter highest growth in final consumption expenditure (7.1% in 3QFY25 vs. 5.3%/5.6% in 3QFY24/2QFY25). Both private and government consumption witnessed an improvement during the quarter. Additionally, real net exports added 2.5pp to real GDP growth in 3QFY25 (the highest contribution in seven quarters). Nominal GDP growth was 9.9% in 3QFY25, lower than 12.9% in 3QFY24 but better than 8.3% in 2QFY25.
* In 9MFY25, real GDP grew 6.1%, which was lower than 9.5% in 9MFY24 and the lowest in the last four years during the corresponding period. Real PFCE grew 6.8% in 9MFY25, though investment growth weakened to 5.8%. Government consumption growth also weakened, while real net exports added significantly to GDP growth in 9MFY25.
* Real GDP growth for FY23 was revised up to 7.6% (from 7.0% earlier) and FY24 growth was revised up by 100bp to 9.2%. Real PFCE was revised up to 7.5%/5.6% in FY23/FY24 vs. 6.8%/4.0% earlier. Real investment growth was also revised up, though government consumption and net exports were revised down. According to Second Advance Estimates (SAEs), real GDP is projected to grow 6.5% in FY25, led by a three-year high growth of 7.6% in private consumption. This implies that 4QFY25 real GDP growth would be 7.6% (vs. 8.4% in 4QFY24).
* Real GVA grew 6.2% in 3QFY25 vs. 5.8% in 2QFY25 and 8.0% in 3QFY24, mainly led by a six-quarter high growth in the farm sector and resilient services sector growth, which was partly offset by subdued industrial sector growth. In 9MFY25, real GVA grew 6.2%, much lower than 9.0% in 9MFY24, led by subdued growth in the industrial sector. Real GVA growth for FY23 and FY24 was revised up to 7.2% (from 6.7% earlier) and 8.6% (from 7.2% earlier), respectively. Details suggest that the upward revision in GVA in FY23/FY24 was broad-based. According to SAEs, real GVA is projected to grow 6.4% in FY25 vs. 8.6% in FY24.
* India's investment rate stood at 30.5% of GDP in 3QFY25, lower than 34.7% of GDP in 2QFY25 and 31.6% of GDP in 3QFY24 and the lowest in the last 12 quarters. India's net imports came in lower at 2.6% of GDP in 3QFY25 vs. 2.7% in 3QFY24. Consequently, implied Gross Domestic Savings (GDS) stood at 27.9% of GDP in 3QFY25 (lowest in 12 quarters) vs. 28.9% of GDP in 3QFY24.
* Overall, 3QFY25 real/nominal growth came in line with market expectations. CSO projects 7.6% YoY growth in 4QFY24, which would be difficult to achieve considering a higher base of 8.4% in 4QFY24. We expect 4QFY25 real GDP growth at 6.0-6.3%. Notably, FY24 real GDP growth has been revised up by 100bp to 9.2% (from 8.2% earlier). This significant revision in last year’s figures has raised the base for this year’s growth calculations. As such, we continue to expect 6.0- 6.2% real GDP growth in FY25 (decent growth considering the 9.2% growth in FY24), lower than 6.5% projected by the CSO. Even if 4QFY24 real GDP growth comes at ~6.5% (decent growth considering 8.4% growth in 4QFY24), full-year growth would still be around 6.1-6.2% (lower than 6.5% projected by the CSO and 6.6% projected by the RBI).
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