GDP growth to pick up, inflation to ease by H2 FY25

i: ICRA expects GDP growth to pick up and CPI inflation to ease in the second half of FY25 on expectations of a normal monsoon with limited agro-climatic disruptions. GDP growth is expected to dip to 6.5 per cent in FY2025 from the 7.

8 per cent estimated in FY2024 owing to a slowdown in the government’s capex and construction activity and continued weakness in export growth during the first half of the year. ICRA had earlier predicted that the GDP growth will moderate to 6.7 per cent in Q4 FY2024 from 8.

4 per cent in Q3 FY2024. However, rural demand may improve in the second half of FY2025, once there is some visibility around the farm cash flows from rabi procurement, monsoon volume and distribution, and outcomes for the next kharif crop. Likewise, both capex and exports are likely to witness a back-ended pick-up in FY2025, with the latter benefiting from a likely improvement in global demand after rate cuts begin in major economies.

Similarly, CPI inflation will soften to 4.6 per cent in FY2025 from 5.4 per cent in FY24 if the monsoon is normal with limited agro-climatic disruptions and rate cuts unlikely before Q3 FY2025.

Hotter-than-usual temperatures and heatwaves, amid dwindling reservoir levels, pose risks to food inflation in the immediate term, while the IMD's forecast of an above-normal monsoon and La Nina conditions offers hope of disinflation in food items. The policy rates and stance are likely to remain unchanged in the upcoming June 2024 MPC review, given the.