India’s economic data for the first quarter of 2012-13 is implying sluggish growth for the economy. Industrial production, trade activity, vehicles sales, bank credit and deposit growth and tax collections all point to slow growth for the economy. The IIP (Index of Industrial Production) growth for the month of May 2012 came in at 2.4% on a year on year basis against a revised growth of -0.9% for April 2012. Manufacturing growth for May was at 2.5% against a revised growth rate of -1.2% for April. IIP growth and manufacturing growth for May 2011 was at 6.2% and 6.3% year on year respectively. IIP numbers point to decreased industrial activity despite question marks on the quality of data.
India’s exports and imports for June 2012 slowed down by 2% and 15.7% respectively on a month on month basis. Trade deficit fell by 23.6%. Growth slowdown across the globe from China to the Eurozone will impact India’s trade prospects
Vehicles sales grew in single digit levels for June 2012 with passenger car sales growing at 8.3% year on year and total vehicles sales including two wheelers and commercial vehicles growing at 9.05%. Commercial vehicle sales grew at below 5% for June and the weak growth number implies weak industrial activity.
Bank credit and deposit growth was at 16.5% and 13.4% on a year on year basis as of June 2012. Banks are facing issues of liquidity that is in deficit, assets that are being impaired due to economic slowdown and sticky interest rates due to RBI being cautious on monetary easing.
Gross direct and indirect tax collections grew by 6.8% and 13.8% on a year on year basis in the April-June 2012 period. Tax collections while growing are still weak and below full year growth targets set by the government.
The slowdown in the Economy has to be addressed by the government and the RBI. The government has to implement reforms, as it has no fiscal room for maneuver while the RBI will have to ease liquidity and interest rates.
Global monetary easing signals slowdown concerns
Central banks from Korea to ECB eased policy rates in the last one month. Bank of Korea unexpectedly eased its policy rates in July 2012 by 25bps citing global economic slowdown issues that are likely to have an adverse effect on the Korean economy. China eased policy rates by 31bps in July front running inflation that came in at 2.2% for June 2012, the lowest in over two years. China’s second quarter GDP growth came in at 7.6%, the slowest growth seen in three years. China is expected to further ease monetary policy to give a boost to the economy.
ECB cut rates by 25bps to the lowest on record. ECB policy rate stands at 0.75% and the central bank is expected to cut rates further going forward on the back of weakness in the Eurozone economy. Eurozone growth rate is forecast at negative to marginally positive for calendar year 2012.
US job additions for June 2012 was below expectation at 80,000 job additions against expectations of 100,000 job additions. US unemployment rate stayed flat at 8.2% in June. US retail sales grew less than expected in June, which is a concern for the economy as it is dependent on consumer spending. US economy is expected to grow at a slower pace than expected earlier as a global economic downturn weighs on the economy
Global monetary easing will gather pace as the global economy shows signs of weakening further.