Q3 GDP growth surprises at 7%; full year estimates at 7.1%

Washington, DC, February 28, 2017-Real gross domestic product (GDP) increased at an annual rate of 1.9% in the fourth quarter of 2016, according to the second estimate released by the Bureau of Economic Analysis. It is even more surprising that growth in the third quarter - when the economy was adversely affected on account of frictions from the currency swap - is also assumed to be nearly at par with the fourth quarter.

Meanwhile, Growth of 8 core sector industries slowed to 3.4 per cent in January compared to 5.7 pc in the year-ago month, government data showed on Tuesday.

Prime Minister Narendra Modi shocked Indians in November, when he ordered to remove all banknotes with 500-rupee ($7.5 or 7.07 euros) and 1,000-rupee denominations from circulation immediately. Anticipated growth of real GVA at basic prices in 2016-17 is 6.7 per cent against 7.8 per cent in 2015-16.

The federal statistics office retained its growth forecast for the year ending in March 2017 at 7.1%.

The Economic Survey had pegged the FY2017 growth rate in the range of 6.5 to 6.75 percent.

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The U.S. economy grew at a weak 1.9 percent pace in the final three months of previous year, although consumers kept up their spending from the more robust third quarter.

The actual number could be even lower given the CSO numbers will not capture the output of small businesses immediately. NITI Aayog Vice Chairman Arvind Panagariya said: "I have been saying that the (demonetization) impact will not be large". While the government claimed that these growth figures were on the back of growth in agriculture, manufacturing and mining sectors, it seems too good to be true. On the currency crunch impacting growth in fourth quarter of this fiscal and subsequently, Panagariya said, "Currency shortages which have impacted the transaction would be addressed by the beginning of the fourth quarter". At constant prices, the GFCF is estimated at Rs 35.55 lakh crore in 2016-17 as against Rs 35.35 lakh crore year-on-year.

India recorded a growth of 7.6% in 2015 to 2016 and 7.2% in 2014-15.

Probably a very low growth (contraction of 2.2%) in third quarter of 2015-16 could have helped propel agriculture growth to 6% in the current estimates. "Had the economy been weak, we could not have carried out this exercise successfully", he said.

The GDP estimate released Tuesday is based on more complete source data than were available for the "advance" estimate issued last month.

  • Ronnie Bowen