India’s quarterly growth falls to lowest level in almost two years, well below expectations

India’s economy expanded just 5.4% in its fiscal second quarter that ended in September, well below economists’ estimates and near a two-year low.

The figure follows growth of 6.7% compared to the previous quarter and is the lowest reading since the last quarter of 2022. Economists polled by Reuters had forecast growth of 6.5% for the period, while the Bank of Reserve India expected a 7% expansion.

The country’s statistics agency noted slow growth in the manufacturing and mining sector.

The yield on the country’s 10-year sovereign bond quickly sank to 6.74% following the release, from around 6.8%.

The weak GDP reading could potentially affect the country’s interest rate trajectory, and the RBI’s Monetary Policy Committee is scheduled to meet between December 6 and 8. Market watchers were expecting an 11th consecutive pause from the RBI, with the repo rate currently at 6.5%.

Harry Chambers, assistant economist at Capital Economics, said Friday’s reading showed the weakness was “broad.” His firm expects economic activity “to have difficulties in the coming quarters.”

“That strengthens the case for policy easing, but the recent rise in inflation means the RBI will not be comfortable cutting interest rates for a few more months,” he said in a research note.

Speaking to CNBC’s “Squawk Box Asia” ahead of the GDP release, Alicia García Herrero, chief Asia-Pacific economist at Natixis, predicted that India’s economy will slow but not “collapse” in 2025.

He said Natixis has a 6.4% growth forecast for India in 2025, without clarifying whether this refers to the fiscal or calendar year, but added that the figure could also be as low as 6%, which he called “not even a little bit.” problem, but it is not welcome.

On the other hand, the RBI projected that GDP growth for fiscal year 2024 ending March 2025 will reach 7.2%.

Asked how India’s economy will fare under President-elect Donald Trump’s second presidency, Herrero said the country is “not really at the center of the value chain shake-up that China has been undertaking.” “.

“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. “That’s a much more obvious case,” he said.

He said China could manufacture products in India for Indian consumption rather than exporting them globally and as such, New Delhi could avoid being hit by tariffs.