Lower than expected Q1 GDP print, leads to revision of FY 23 GDP Forecast

19 SEP 2022

Compared to Citi's view (18%) and the consensus (15.3%), real GDP increased by 13.5%YY in the first quarter of FY23. Citi Analyst have revised o the FY23 real GDP prediction to 6.7%YY (from 8.0% previously) accounting for a worse 1Q print. Continued contact-based service openings, a slight reduction in margin pressure, a gradual relaxation of the net exports drag, and an improvement in non-subsidy linked government expenditure could assist growth in rest of FY23.

Key Highlights:

• 1. In 1QFY23, real GDP expanded by 13.5%YY: This was below the consensus estimate of 15.3% and below our estimate of 18.0%YY. Real Gross Value Added (GVA) growth was 12.7% year over year in 1QFY23. The nominal GDP increased by 26.7%YY, and the GDP deflator increased to 11.6%YY (up from 10.4% in 4QFY22).



• 2. What led to lower GDP print compared to estimate?
• The growth contribution of net exports in 1QFY23 was -6.2pp (vs -1.0pp in 4QFY22), the smaller GDP print partially indicate a weaker foreign demand situation.
• Weaker growth of 1.3% YY govt expenditure.
• Lower margin of listed companies due to rising input cost, which might have been reflected in weak Manufacturing GVA growth (4.8%YY).



• The domestic demand climate is better than what the headline GDP figure suggests for the first quarter as per Citi analysts and , and future GDP releases may adjust for this.
• 3. What has Improved?
• Services sector recovers but scope for more: Services GVA grew by 17.6%YY, higher than overall real GVA (12.7%). Though there is some sequential recovery in services, this is largely a reflection of favorable base effect (-21% YY in 1QFY22). Adjusting the base effect, the 3 yr CAGR growth of services is at 0.98% as compared to real GVA of 1.5%. Continued economic reopening might support sequential growth momentum in rest of FY23.
• Agriculture production improved: Agri GVA growth improved to 4.5%YY (vs 4.1% in 4Q).

Summary: FY23 GDP forecast are very sensitive to base effects issue in 1Q GDP print. Continued reopening of contact-based services, some easing of margin pressure due to fall in inflation, gradual moderation of CAD causing the headwind from net exports to recede and improvement in non-subsidy linked government expenditure would likely contribute to a decent growth momentum sustained for rest of the year. A more severe global slowdown or a tightening of monetary policy than anticipated pose downside risk to Citi analyst revised growth forecast.

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