India’s growth will be below 5 percent in first half: Moody’s

February 27th, 2009 - 3:45 pm ICT by IANS  

New Delhi, Feb 27 (IANS) The government estimate of 7 percent gross domestic (GDP) growth for the current fiscal year will certainly be missed and the “overly optimistic projection” needs to be substantially revised downward to below 5 percent, according to the research arm of global rating agency Moody’s.
“With the recent deterioration in global economic conditions, it is almost certain that India’s growth will slow to under 5 percent in the first half of 2009,” said Sherman Chan, an economist with Moody’s

“A recovery seems far from sight, as the fiscal stimulus does not appear strong enough to foster a rebound the way China’s fiscal boost is expected to do,” Chan said.

India’s third quarter GDP growth figure of 5.3 percent was disappointing, and the government’s stance that the country’s economy is more resilient in this global turmoil because it is more domestic-oriented stands discredited.

“It now appears that India is in the same boat as its neighbouring Asian economies,” Chan said.

“The sharper-than-expected deceleration in the December quarter perhaps makes up for the slowdown that should have taken place in the September quarter when the rest of the region began to show strong signs of fatigue.”

Chan said the sector-by-sector breakdown shows directions that are in line with expectations. “Manufacturing declined, though only mildly. A much sharper contraction in industrial activity is expected during 2009.”

She said though construction managed to expand in late 2008, it is likely to come to a standstill in 2009 on account of a slowdown in investment.

The Moody’s economist said trade and tourism-related sectors showed signs of fatigue, and “further moderation is expected this year as exports are set to tumble and visitor arrivals are bound to be subdued when major economies around the world remain in recession”.

The “only upside surprise” from the data breakdown, Chan said, is the resilience shown in the financial and real estate sectors. “Growth did not slow but instead accelerated mildly. However, the momentum is unlikely to last. A slowdown is bound to take place in the following quarter, as the economy faces strong headwinds.”

According to her, the expenditure breakdown clearly points out why the growth rate falls short of expectations: private consumption, which accounts for about 60 percent of GDP, slowed in line with forecast.

Although the surge in public spending was much stronger than expected, its additional contribution to growth was more than offset by the sharp slowdown in gross fixed capital formation, which makes up 31 percent of GDP, Chan said.

Noting that exports “surprisingly” accelerated and imports decelerated, she said this trend may see a sharp turn in 2009, as export performance is expected to dip into negative territory.

“When global economic conditions begin to improve, India will then see a bottom. Although the emerging giant is driven mainly by domestic consumption, it is still hurt by external weakness through a slump in exports and foreign-funded investments,” Chan said.

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