Despite headwinds, global economic activity remains resilient in Q1FY24: SBI report

This is in sharp contrast to IMF’s latest forecast estimating global growth to fall from 3.5% in CY22 to 3% each in CY23 and CY24 with rapid rate hikes by central banks to fight sticky inflationary trends weighing on economic activity.

Also, globally, nonservices sectors, including manufacturing, have shown weakness, and high-frequency indicators for the Q1FY24 point to a broader slowdown in activity.

Plus, gross fixed capital formation (GFCF) and industrial production have slowed sharply or contracted in major advanced economies, dragging international trade and manufacturing in emerging markets as a corollary.

The balance of risks to global growth remains tilted to the downside as extreme climatic events and enhanced geopolitical tension upend the drivers of risk multi-fold.

Notwithstanding the headwinds, IMF has projected India’s growth at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection, due to stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.

In Q1FY24, Manufacturing is sustained as reflected in better IIP, automobile sales, PMI data etc.

Further, agriculture sales have been strong and power supply has been high. On the services side, passenger traffic picked up in Q4FY23 has sustained while Air cargo traffic increased.

The SBI composite leading indicator (CLI) Index (a basket of 43 leading indicators that includes parameters from almost all the sectors) based on monthly data shows continued positive economic activity in Q1FY24, compared to Q4FY23.

RBI has estimated Q1FY24 Real GDP growth at 7.8% and full-year FY24 growth at 6.5%.

SBI has developed an Artificial Neural Network (ANN) model with 30 high-frequency indicators. ANN has been trained for the quarterly GDP data from 2011Q4 to 2020Q4. The in-sample forecast performance of the model in the training period has been precise.

"Out of Sample Forecast Performance, of the last four quarters have been precise. On the basis of the ANN model, we forecast that the quarterly GDP growth for Q1FY24 would be at 8.3%. Given that the GDP deflator at -0.6% (due to negative WPI), we expect nominal GDP growth at 7.7-7.8% for Q1 FY24. This the first time since Q4 FY19, when nominal GDP growth is expected to be less than the real GDP growth," he said.

Most importantly, there has been a surge in capital expenditure in Q1, with the Central government spending 27.8% of the budget, while states are at 12.7% of the budget. States like Andhra Pradesh, Telangana, and Madhya Pradesh where elections are due have registered capital expenditure growth up to 41%.