The second quarter GDP growth for fiscal 2011-12 printed at 6.9% against a level of 7.7% seen in the first quarter. The economic data is far from encouraging and GDP growth for 2011-12 in all likelihood will come in below government expectations of 7.5%. The government is unable to act to take up growth given its weak finances and lack of political consensus on reforms and it is left to the RBI to bring about a soft landing for the economy.
Industrial production numbers for October 2011 came in at a negative 5.1% growth on a year on year basis. The IIP (Index of Industrial Production) declined by 4.5% on a month on month basis. Manufacturing index was down 6% on a year on year basis and 0.8% on a month on month basis. The April-October 2011 IIP growth was at 3.5% against 8.7% seen in the previous year. IIP growth is unlikely to recover quickly on the back of weak investment demand. India’s most prominent engineering firm L&T has said that projects were not taking off due to funding and policy constraints and order book growth for all infrastructure companies will be weak for the rest of the year.
Vehicle sales showed higher growth in November 2011 against October 2011. Total vehicle sales grew by 22.2% on a year on year basis in November against a negative 1.05% growth seen in October. Two wheeler and commercial vehicle growth for November was at 25.2% and 34.9% respectively leading to the robust year on year vehicle sales growth. Passenger car growth was at 7% in November against a negative 20.25% growth in October.
Net direct tax grew by 8.8% while indirect tax grew by 16.9% in the April-November 2011 period. Government finances continue to remain weak with the government running overdraft balances with the RBI and budgeted sources of revenue from dis investments not happening. Fiscal deficit projected at 4.6% of GDP for 2011-12 will come in at least 1% higher due to lack of budgeted revenues.
Imports for November 2011 were down by close to 9% on a month on month basis indicating slower demand growth for goods. Import growth was lower month on month despite a weak Indian Rupee, which fell over 7% on a month on month basis.
Inflation as measured by the WPI (Wholesale Price Index) for the month of November 2011 came in at 9.11% against levels of 9.73% seen in October. Inflation for November rose just by 0.06% on a month on month basis against 0.6% seen in October. Primary article inflation has dropped sharply from 11.4% in end October to 6.9% in end November 2011. Inflation is expected to show a continuing downward trend in the coming months on the back of base effect, falling primary article inflation and weak global commodity prices.
Manufacturing growth in the Eurozone and China contracted in November 2011, the fourth straight month of contraction. The US manufacturing growth recorded the sharpest rise in five months. The US unemployment rate dropped to 8.6% in the month of November 2011 from 9% levels seen in October 2011. The US economy continued to add jobs in November 2011 with 120,000 jobs added. US added 100,000 jobs in October 2011. US retail sales rose 0.2% in November on the back of strong Thanksgiving Day sales. Economic outlook for the US is much better than that of the Eurozone. US economy is expected to grow at a moderate pace according to the US Federal Reserve (Fed) while the European Central Bank (ECB) has issued warning of a mild recession for the Eurozone in 2012.
Inflation in China dropped to its lowest level in almost a year with consumer price inflation coming in at 4.2% for November 2011. Inflation levels in the Eurozone remained at 3% for the third consecutive month while Brazil inflation rate came in higher than expected at 6.5% for the month of November 2011. Central banks across the world are factoring in a scenario of slow growth and falling inflation on the back of issues in the Eurozone.
People’s Bank of China (PBOC) cut reserve requirement for banks by 50bps in November 2011 and is expected to make more cuts to free liquidity. Brazil central bank cut its policy rate in December 2011 for the third time since August 2011. ECB cut rates in December 2011, the second in as many months. Australian central bank cut rates in December 2011, the second cut is two months. Central banks are cutting policy rates in the face of a global economic slowdown. Calendar year 2012 will see more rate cuts by central banks as inflation cools off on the back of recession worries in the Eurozone.