India’s fourth quarter 2011-12 GDP growth came in at a nine year low of 5.3%. The fourth quarter growth number pulled down GDP growth for fiscal 2011-12 to 6.5% from earlier estimates of 6.9%. The government has placed 2012-13 GDP growth at 7.6% and given the weak start to the economy for fiscal 2012-13 and given global economic weakness, India’s GDP growth forecast is being lowered by economists to below 7% with some even going below 6%.
IIP (Index of Industrial Production) growth for April 2012 was an anemic 0.1% with manufacturing growth also at 0.1%. IIP growth for April 2011 was 5.7% while manufacturing growth for April 2011 was 5.1%. Trend in IIP growth is down even if the numbers are suspect and are prone to volatility due to items such as rubber insulated cables, which fell 85% year on year thus impacting capital goods growth numbers sharply.
Total vehicles sales grew at 8.15% on a year on year basis for the first two months of fiscal 2012-13 with passenger car sales growth at 3.5%. Rising fuel prices with petrol prices being raised by almost 10% coupled with lending rates staying sticky at higher levels is impacting vehicle sales.
Gross direct tax collection grew 3.6% on a year on year basis for the April-May 2012 period while gross corporate tax collection dipped 2.8% for the period. However net direct tax collections grew 175%, as refunds were much lower this year. Indirect tax collection grew by 13% in the first two months of fiscal 2012-13 on a year on year basis, helped by higher excise duty (17% growth) and service tax (40% growth) collections.
Inflation for the month of May 2012 came in at 7.55% against levels of 7.23% seen in April 2012. Manufacturing inflation stripped of volatile food product items was at 4.99%.
Weak economic growth numbers are fuelling speculation of repo rate and CRR (Cash Reserve Ratio) cut by the RBI in its mid quarter policy review on the 18th of June. RBI may wait for inflation to come off and study the effects of the crisis in the Eurozone before cutting policy rates.
Sovereign debt crisis in Eurozone and weak economic data in China and US are hurting growth expectations
Global growth expectations are hit on worries of sovereign debt issues in the Eurozone and weak economic data from the US and China. Accommodative monetary policy is not helping improve sentiments.
Eurozone debt crisis took a fresh turn with Spain’s ten year bond yields rising to its highest levels in over a decade to over 6.8%. A level of 7% on bond yields for Eurozone countries that are in recession makes debt servicing unsustainable. Italy’s bond yields rose in sympathy with Spain’s with its ten year bond yield crossing 6% levels in June, its highest in over four months. Spain has asked for and been granted Euro 100 billion recapitalization funds for its banks from the EU (European Union) and markets are worried on further bailout requests from other indebted nations. Greece goes to polls for the second time in three months and if hardliners opposed to bailouts with clauses gain power, there will be fresh trouble for Eurozone.
China cut interest rates for the first time since 2008 on worries of weak growth. China’s manufacturing growth was down in May while its inflation for May was at a two year low of 3%.
US manufacturing growth was down in May and the economy added 69,000 jobs in May, the lowest job addition in over a year. US GDP growth numbers for the first quarter of 2012 was revised down to 1.8% from earlier estimates of 2.2%. US economy while showing positive growth signs is sluggish leading to the US Federal Reserve (Fed) maintaining policy rates at zero percent. The Fed has however refrained from carrying out another round of bond purchases and this is helping the US Dollar, which has gained close to 5% over the last one and half months.