The gross domestic product (GDP) data released on Friday confirmed distress stories emanating from different sectors. The private final consumption expenditure (PFCE), which reflects demand in the economy, grew 3.14 per cent in the first quarter (Q1) of 2019-20 (FY20) — a 17-quarter low.
The PFCE grew by 7.2 per cent in the previous quarter (January to March or Q4 of 2018-19 or FY19). In the year-ago period, PFCE growth was 7.31 per cent.
Economists and analysts identified this as the most distressing signal.
“Collapse of private consumption demand growth from 10.6 per cent in Q4FY18 to 3.1 per cent in Q1FY20 is the real cause of concern,” said Devendra Pant, chief economist at India Ratings.
He added, “Both structural and cyclical issues are plaguing the economy. In order to bring the economy back to a respectable growth path, both short- and long-term measures are required.”
Also, the PFCE’s share in GDP declined to a seven-quarter low of 57.7 per cent in Q1FY20. In Q4FY19, it was 59.3 per cent, and it was 58.7 per cent in Q1FY19.
Demand is a function of sentiments, said Ranen Banerjee, leader of public finance and economics at PwC India, adding that at the moment, it was negative because of slowdown and job losses. “When sentiments are negative, people spend less, at least their discretionary spending is less,” he said.
GDP data confirms demand slowdown; consumption expenditure at 17-qtr low Banerjee said negative sentiments feed into slowdown and this viscous cycle needed to be broken. “If only monetary stimulus is looked at to turn around the economy, I don’t think it will work,” he said.
Stories of slowdown in demand have been coming in from the auto and the fast-moving goods (FMCG) sectors for a while now. According to an ICRA note, passenger vehicle sales is likely to decline to 4-7 per cent this financial year.
The auto industry has already registered a 21.6 per cent de-growth in the first four months of 2019-20, ICRA said, adding in the short-term, prevailing subdued rural and urban sentiments would have an impact, besides the BS-VI emission norms.
Varun Berry, managing director at FMCG major Britannia, had earlier said if a customer needed to think twice before buying a product priced at Rs 5, there was some problem in the economy.
However, a look at the index of industrial production (IIP) data, growth in the FMCG sector was not really muted in Q1FY20. It stood at 7.3 per cent, compared to 1.8 per cent in Q1FY19.
Consumer durables, however, have suffered. The industry contracted 1.1 per cent in Q1FY20, against 8 per cent growth in Q1FY19. Motorcycles and two-wheeler production contributed 0.2 per cent contraction in the IIP in June. Auto components also pulled down the IIP by 0.2 per cent.
The PFCE grew by 7.2 per cent in the previous quarter (January to March or Q4 of 2018-19 or FY19). In the year-ago period, PFCE growth was 7.31 per cent.
Economists and analysts identified this as the most distressing signal.
“Collapse of private consumption demand growth from 10.6 per cent in Q4FY18 to 3.1 per cent in Q1FY20 is the real cause of concern,” said Devendra Pant, chief economist at India Ratings.
He added, “Both structural and cyclical issues are plaguing the economy. In order to bring the economy back to a respectable growth path, both short- and long-term measures are required.”
Also, the PFCE’s share in GDP declined to a seven-quarter low of 57.7 per cent in Q1FY20. In Q4FY19, it was 59.3 per cent, and it was 58.7 per cent in Q1FY19.
Demand is a function of sentiments, said Ranen Banerjee, leader of public finance and economics at PwC India, adding that at the moment, it was negative because of slowdown and job losses. “When sentiments are negative, people spend less, at least their discretionary spending is less,” he said.
GDP data confirms demand slowdown; consumption expenditure at 17-qtr low Banerjee said negative sentiments feed into slowdown and this viscous cycle needed to be broken. “If only monetary stimulus is looked at to turn around the economy, I don’t think it will work,” he said.
Stories of slowdown in demand have been coming in from the auto and the fast-moving goods (FMCG) sectors for a while now. According to an ICRA note, passenger vehicle sales is likely to decline to 4-7 per cent this financial year.
The auto industry has already registered a 21.6 per cent de-growth in the first four months of 2019-20, ICRA said, adding in the short-term, prevailing subdued rural and urban sentiments would have an impact, besides the BS-VI emission norms.
Varun Berry, managing director at FMCG major Britannia, had earlier said if a customer needed to think twice before buying a product priced at Rs 5, there was some problem in the economy.
However, a look at the index of industrial production (IIP) data, growth in the FMCG sector was not really muted in Q1FY20. It stood at 7.3 per cent, compared to 1.8 per cent in Q1FY19.
Consumer durables, however, have suffered. The industry contracted 1.1 per cent in Q1FY20, against 8 per cent growth in Q1FY19. Motorcycles and two-wheeler production contributed 0.2 per cent contraction in the IIP in June. Auto components also pulled down the IIP by 0.2 per cent.
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