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GDP Estimates Cut Sharply From The Fall Of Ukraine’s War, Says Rating Agency


ICRA reduced its FY23 GDP growth estimates sharply to 7.2% on the impact of the Ukraine conflict

Mumbai:

The domestic rating agency ICRA on Tuesday cut its estimate of FY23 real gross domestic product (GDP) growth by 0.8 percent to 7.2 percent, mainly driven by the impact of Russia’s aggression on Ukraine.

The chief economist, Aditi Nayar attributed the downward revision to rising commodity prices as well as new supply chain issues arising from the conflict in Ukraine.

It should be noted that the Reserve Bank expects a GDP growth rate of 7.8 per cent in FY23. The central bank is set to develop its first bi-monthly monetary policy for the next fiscal year in early April when it will revise the amount.

Real GDP growth is likely to moderate to 3-4 per cent in Q4FY22 from 5.4 per cent in Q3FY22, which will lead to a real GDP growth rate of 8.5 per cent in FY22.

As expected, the third wave had a smaller effect on confidence levels than the first two waves. While preliminary data for March 2022 are mixed, the Russia-Ukraine conflict and related commodity price surges have increased uncertainty, and the expected margin compression is likely to squeeze GVA growth.

“Higher fuel and commodity prices such as edible oil are likely to compress disposable income in the middle to low -income segment, curbing a resurgence in demand in FY23,” Ms Nayar said.

While welcoming the extension of the free food cereal scheme until September 2022, he said it would offer some deferral to vulnerable household food budgets, while among middle- to upper-income households, behavioral normalization after the third wave would drive consumption towards services intensive contact avoided during an outbreak.

Exports of some goods will increase to meet global demand amid the supply crisis. The level of capacity utilization will increase to 74-75 per cent in Q3 FY23 from 71-72 per cent in Q4 FY22, the agency said, adding this could cause a “moderate delay” in the much-awaited base capacity expansion. by private parties.

The agency said that the early start of the Capex Central budget program remained important to boost investment activity in the first half of FY23.

“However, the concern is that implementation risks shift to the states, with much of the increase in GoI budget capital expenditure coming through an increase in the size of interest-free Capex loans to state governments to Rs. 1 lakh crore in FY23 from Rs 15,000 crore in FY22 , “he added.

Nayar said protracted geopolitical tensions and high commodity prices posed a downside risk to growth prospects, with margin compression set to squeeze gross value added (GVA) growth during periods of conflict.

“Moreover, the K-shaped recovery is likely to continue with the formal sector gaining market share in FY23,” he said, warning that the socio-economic trend would continue.

The agency feels healthy reservoir levels offer insurance against potentially below -average rainfall in 2022. However, when economic activity returns to normal, there may be changes in the availability of agricultural labor across different regions, affecting acreage in some states, which have become the main drivers of Agri output during FY21 and FY22.

Inadequate fertilizer availability is also a concern for the farm sector, indicating that systemic inventories are well below historical levels across all fertilizers, mainly due to lower imports amid limited availability in international markets and rising prices.

So, even with a normal monsoon and healthy reservoir levels, acreage, production may not increase significantly in FY23, restraining agricultural GVA growth to below 3 percent, the rating agency said.

Agrasmartcity

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