India’s GDP growth estimates for 2012-13 are being revised downwards on the back of weak monsoons, rising inflation, sticky interest rates and sluggish global growth. RBI revised the GDP growth estimates for 2012-13 downwards from 7.3% to 6.5% in its policy review in July. RBI upped inflation estimates from 6.5% to 7% for the year and kept interest rates steady in its policy review. Economists from the private sector and from rating agencies such as Moody’s are forecasting economic growth at below 6% levels.
Economic data is giving strength to the lower growth forecasts. The IIP (Index of Industrial Production) growth numbers for June 2012 came in at a negative 1.8% against a positive 2.5% growth seen in May 2012. Manufacturing growth came in at a negative 3.6% against a positive 2.6% growth seen in May. Industrial activity is slowing down with April and June showing negative growth in IIP.
Vehicle sales are showing slow growth trends with passenger car sales growing by 5.3% and commercial vehicle sales growing by 4.9% in the April-July 2012 period. Two wheeler sales have been better at 9.5% growth.
Gross direct tax collections are up by just 4.7% for the April-July 2012 period. Corporate results for the first quarter 2012-13 are showing weakening sales growth trends with sales growth at the lowest levels in over the last three years.
Credit has hardly grown in fiscal year to date as banks are going slow on loans due to issues of bad loans. Public Sector Banks bad loans have increased by over 50% on an average on a year on year basis as of June 2012 on the back of a weakening economy.
The monsoons for 2012 are around 22% below normal and this is raising concerns of growth in the agricultural sector. Sluggish agricultural growth coupled with weak manufacturing growth is likely to pull down the overall economic growth for 2012-13. The fact that the global economy is also showing signs of weakening does not bode well for trade. Slow growth in exports will further hit the economy.
Global growth worries increase
China’s trade data for July 2012 showed the extent to which global economic slowdown has hurt economies. China’s exports rose by just 1% in July against an 11.3% increase in June. China’s exports account for around 30% of GDP and slow export growth will hurt the economy, which is growing at a three year low of 7.6% as of second quarter 2012.
Japan’s second quarter 2012 GDP growth was an annualized 1.4% against a growth of 5.5% seen in the first quarter 2012. Japan is facing the double whammy of a global economic slowdown and a strong currency (up over 40% over the last few years).
The outlook for the Eurozone economy is not very bright given the debt crisis in countries such as Italy, Spain, Portugal, Ireland and Greece hitting growth in these economies. Eurozone manufacturing contracted for the sixth straight month in July 2012 while unemployment at over 10% is highest on record.
US is the only country that came out with positive data with job additions in July 2012. The US economy added 163,000 jobs in July against expectations of 100,000 job additions. US unemployment rate rose to 8.3% in July from 8.2% in June as more people sought work. US economy is expected to show sluggish growth in 2012 but given the various concerns world over even sluggish growth will make the country stand out amongst its peers.