India’s quarterly growth slumps to a near two-year low, well below expectations

India’s economy expanded by just 5.4% in its second fiscal quarter ending September, well below estimates by economists and close to a two-year low.

The print follows 6.7% growth over the previous quarter and is the lowest reading since the last quarter of 2022. Economists polled by Reuters had forecast growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.

The country’s statistics agency noted sluggish growth in manufacturing and the mining sector.

The yield on the country’s 10-year sovereign bond quickly sank to 6.74% after the release, from around 6.8%.

The weak GDP reading could potentially affect the country’s interest rate trajectory, with the RBI’s Monetary Policy Committee scheduled to meet between Dec. 6-8. Markets watchers had been expecting an eleventh consecutive pause by the RBI, with the repo rate currently at 6.5%.

Harry Chambers, an assistant economist at Capital Economics, said the Friday reading showed that weakness was “broad based.” His firm expects economic activity “to struggle over the coming quarters.”

“That bolsters the case for policy loosening, but the recent jump in inflation means the RBI won’t feel comfortable cutting interest rates for a few more months yet,” he said in research note.

Speaking to CNBC “Squawk Box Asia” before the GDP release, Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, forecast that India’s economy will slow but not “collapse” in 2025.

She said that Natixis has a 2025 growth forecast of 6.4% for India — without clarifying whether this refers to the fiscal or calendar year — but added that the print could also come in as low as 6%, which she qualified as “not a bit problem, but it’s not welcome.”

Separately, the RBI projected that GDP growth for the 2024 fiscal year ending in March 2025 will reach a higher 7.2%.

Asked how India’s economy will fare under President-elect Donald Trump’s second presidency, Herrero said the country is “not really at the center of the reshuffling of the value chain that China has been conducting.”

“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. That’s a much more obvious case,” she noted.

She said that China could make products in India for Indian consumption instead of exporting products globally — and as such, New Delhi could avoid getting hit by tariffs.