Q2 GDP shows India officially in recession but sequential improvement points to an economy on the mend

India's economy officially entered into recession as the second quarter GDP contracted at a slower pace of 7.5 per cent compared to a massive 23.9 per cent in the first quarter of the current fiscal. The GVA declined by 7 per cent.

The surprise was thrown by good performance by the manufacturing sector that showed marginal growth in the second quarter. However, the private consumption shrank by 11.5 per cent showing that bounce back in private demand is still some time away.

The economy had slumped a massive 23.9 per cent in the first quarter as the lockdown imposed to control coronavirus pandemic had brought the economic activity to a standstill.


However, sequentially, the economy showed significant improvement with broad-based improvement in high frequency indicators.

The number that were released today by the National Statistical Office point to an economy that's on the recovery path and could show growth from third quarter onwards.

The recovery in the second quarter has been driven by pent up demand as the curbs that were imposed in the wake of the coronavirus pandemic began gradually easing. Many high frequency indicators showed recovery was underway and is likely to have further picked up momentum in the third quarter driven mainly by the festive push.

GST collections, factory output data, PMI data all showed an economy that is on the mend.

Key drivers:

Manufacturing GVA grew 0.6 per cent growth compared to a contraction of more than 39 per cent in the first quarter. Electricity, gas, water supply and other utility services grew at 4.4 per cent while agriculture, forestry and fishing sector grew at more than 3 per cent.

Key Laggards:

Construction GVA declined by more than 8 per cent while trade & hotels contracted by over 15 per cent. Public spending, defence and other services were down 12 per cent and the financial, real estate and professional services sector contracted by 8.1 per cent.

Challenges:
RBI governor Shaktikanta Das cautioned about demand sustainability amid optimism over faster-than-expected rebound in the economy. He pointed to a surge in infections as a downside risk to the economic rebound that only gained momentum in the present quarter.