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India’s economic growth is showing signs of recovery after decelerating in 3Q24, growing at 5.4%, y-o-y, down from 6.7%, y-o-y, in 2Q24. This slowdown was largely driven by contractions in the mining and manufacturing sectors. The mining sector was significantly affected by heavy rains in the northeastern regions disrupting operations. This led to a contraction of 0.1%, y-o-y, in 3Q24, compared to 7.2% y-o-y growth in 2Q24. Persistent inflation weighed on consumer spending in 3Q24, as food inflation remained elevated due to a volatile supply of key vegetables. Private consumption slowed to 6.0%, y-o-y, down from 7.4%, y-o-y, in 2Q24. Government spending returned to slower-than-expected growth of 4.4%, y-o-y, in 3Q24, following a slight contraction of 0.2%, y-o-y, in 2Q24, a typical occurrence during election cycles. For comparison, government spending grew 14.0%, y-o-y, in 3Q23. Gross fixed capital formation also showed signs of slowing, growing by 5.4%, y-o-y, in 3Q24, down from 7.5%, y-o-y, in 2Q24. The major factors driving this trend were high borrowing costs, with interest rates remaining at 6.5%, and elevated inflation. Additionally, consumer and business confidence declined. However, the slowdown in mining activity, caused by weather-related disruptions during the monsoon season, is also expected to ease as the season ends. Similarly, the sharp rise in imports, driven by loosened restrictions and reduced duties on gold and silver, is likely to be temporary. The surge in demand for these precious metals during the festive season has passed, and trade patterns are expected to normalize, further contributing to economic recovery and growth. Agriculture is projected to rebound, thanks to monsoon rainfall that ended 6% above the historical average nationwide. This favourable outcome is expected to bolster agricultural production and improve rural incomes. However, unemployment remains a significant drag on the economy. Addressing urban unemployment specifically is expected to become a focus for the government, as highlighted in the July Union Budget, alongside maintaining strong support for the manufacturing and industrial sectors. These trends point to continued solid economic growth in 2025 and 2026, though at a slight deceleration from 2024. This deceleration reflects both the high baseline effects of the strong growth witnessed in 2024 and ongoing uncertainties related to labour market dynamics and inflation. Despite these challenges, the Indian economy remains on track for steady expansion, supported by a combination of fiscal and monetary measures designed to sustain growth and stability. Powered by Capital Market - Live News
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