National Accounts Data and Economic Growth
The recent national accounts data release has positively surprised economists by revealing a 7.4% GDP growth for the fourth quarter of 2004-25, resulting in a full-year growth rate of 6.5% in real terms, aligning with the National Statistics Office's projections.
Sectoral Performance and Economic Recovery
- Gross Value Added (GVA) growth was at 6.8%, driven by sectors like agriculture, construction, and services.
- The manufacturing sector grew only by 4.8%, acting as a drag on the overall growth.
Demand Side Dynamics
- Private final consumption expenditure increased by 7.2%, compared to 5.6% in the previous year.
- Investment expanded by 7.1%, a decline from 8.8% in the previous financial year.
Comparison with Previous Years
Although the growth rate was 6.5%, it marked a significant deceleration from the 9.2% growth recorded in 2023-24 and was the slowest since the pandemic recovery began in 2021-22.
Agricultural Sector and Monsoon Impact
The agricultural sector is expected to perform well due to an early and above-normal monsoon, potentially boosting rural incomes and demand.
Monetary Policy and Inflation
- Higher agricultural output and lower food inflation may allow the Monetary Policy Committee (MPC) to ease policy.
- Analysts expect a reduction in the policy interest rate by 50 to 100 basis points, depending on inflation outcomes and growth projections.
External Economic Influences
Global trade uncertainties, primarily due to US tariff policies, could affect exports and investment, posing risks to growth.
Fiscal Policy and Growth Risks
- The government met its fiscal-deficit target last year and is expected to do so again.
- Continued higher allocation for capital expenditure is crucial for supporting growth.
- The biggest growth risks are considered to be external, particularly affected by global economic and trade conditions.
