Growth In Economic Activity To Remain Sub-7% In Q2FY25: Icra

The rating agency Icra has said that year-on-year (YoY) growth in economic activity is expected to remain sub-7% in Q2 FY2025 with the excess rains weighing on mining activity, power generation and retail footfalls, and an adverse base and continued weakness in merchandise exports constraining growth in manufacturing output in the quarter, even though the dip in global commodity prices would augur well for corporate margins. 

Moreover, the positive impact of abundant rainfall on agri output and rural demand would possibly manifest only in Q3FY2025. “We expect growth to pick up in H2 FY2025 aided by tailwinds owing to an improvement in rural demand and an acceleration in government capex,” Icra added. 

Overall, Icra forecasts the domestic product (GDP) and gross value added (GVA) growth to print at 7.0 per cent and 6.7 per cent, respectively, in FY2025. We expect the CPI inflation to undershoot the Monetary Policy Committee’s (MPC) forecast of 4.4 per cent for Q2FY2025, although the full-year FY2025 print is likely to remain in line with its forecast of 4.5 per cent. 

Despite the US Fed’s 50 bps rate cut in September 2024, Icra noted, “We do not expect any rate action in the MPC’s October 2024 meeting, although a change in stance cannot be entirely ruled out.” The outlook for the fiscal and current account deficit remains benign, notwithstanding the upside risks to the latter owing to the cut in the import duty on gold.

The volume trend of high-frequency indicators for the industry and services segments points to a deceleration in growth during July-August FY2025 compared to Q1FY2025. The Icra Business Activity Monitor - an Index of high-frequency indicators, witnessed a relatively lower YoY growth of 7.5 per cent vs. 9.7 per cent seen in Q1 FY2025, driven by a deterioration in the performance of ten of the 14 indicators, barring cargo traffic at major ports, domestic airline passenger traffic and petrol consumption.