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Demand resilience to drive steel sector
Sumit Maitra
The headwinds are strong for the global steel sector: current global geopolitical situation and slow-down in several sectors of the Chinese economy particularly in construction activities will lead to stagnant growth in steel production during the current financial year.
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Both input costs and steel prices have softened in recent times.
But recently revealed key data points and several indicators of Indian economy point to its inherent strength that will support demand growth in the domestic steel market.
GDP jumps to 6.1% in Q4 aided by services, manufacturing
Economic output expanded at a better-thanexpected pace of 6.1 percent in Q4 of FY23 from an upwardly revised 4.5 percent growth in Q3 FY23.
A rebound in the manufacturing sector’s output and double-digit growth in construction supported industrial growth.
For FY23, the economy clocked a growth of 7.2 percent, higher than the earlier estimate of 7 percent as per second advance estimate.
“Services sector was the key driver which benefitted from the pent-up demand. The strength in domestic demand supported the momentum amid the global slowdown,” Care Ratings said.
There was a broad-based improvement in growth across sectors.
Services sector sustained momentum owing to growing travel demand as reflected in strong passenger traffic (both railways and airports) and PMI-services data.
“Better-than-expected growth was largely fueled by investments, as consumption growth remained weak. Real consumption grew 2.7 percent y-o-y in Q4, while real investments rose faster (at 7.8 percent y-o-y). Exports spiked 11.9 percent y-o-y in Q4FY23 led by a stellar growth in services exports while imports growth moderated to 4.9 percent due to a fall in commodity prices,” Motilal Oswal Institutional Research said in a report.
Quarterly GDP Growth
Expenditure
On the expenditure side, the private consumption to GDP ratio stood at 55 percent in Q4 FY23 and was lower than 56.7 percent a year ago.
On a positive note, the investment rate jumped to 35.3 percent in Q4 FY23 compared with 34.3 percent last year in the same period.
For FY23, private consumption to GDP ratio was only marginally higher compared to the last fiscal. However, investment rate bounced to a decadal high supported by the government’s continuous thrust on capital expenditure.
“Going ahead, high core inflation, easing of pent-up demand, weak labour market and weather-related challenges could have a bearing on private consumption. Consequently, we expect the private consumption to GDP ratio to moderate marginally in FY24. On the investment front, global slowdown and financial uncertainties could weigh on pickup in the private investment cycle but the support from government capital spending will bode well for the overall investment in the economy,” Care Ratings said.
Details suggest that real consumption growth picked up to 2.7 percent y-o-y in Q4FY23 over 1.8 percent in Q3FY23, led by an improvement in private consumption (2.8 percent y-o-y in Q4FY23 against 2.2 percent y-o-y in Q3) and a growth of 2.3 percent in government consumption (against a negative 0.6 percent in Q3).
