The CSO (Central Statistical Office) estimates that the Indian economy will grow by 5.2% in the second half of fiscal 2013-14. The economy has grown by 4.6% in the first half and full year 2013-14 growth estimate is 4.9%. GDP growth for the first two quarters of fiscal 2013-14 was 4.4% and 4.8%. GDP growth for fiscal 2012-13 was 4.5%.
CSO estimates that Agriculture and Allied Activities that has a 14% weight in total GDP will lead GDP growth. This segment is expected to grow at 4.6% for full year 2013-14 against a growth rate of 1.4% seen in 2012-13. Apart from Agriculture and Allied Activities, the Financing, Real Estate, Insurance and Business Services segment that has a weight of 19% in total GDP, with a growth of 11.2% for 2013-14 against a growth of 10.9% in 2012-13, will contribute to the GDP growth of 4.9% expected for fiscal 2013-14.
Manufacturing with a 14.6% weight in GDP is expected to contract in 2013-14 while Trade, Hotels, Transport and Communication with a 27% weight in GDP is expected to grow at 3.5% in 2013-14 against 5.1% growth seen in 2012-13.
It is possible for agriculture to push up growth for the second half of 2013-14 given good monsoons. Foodgrains production is expected to grow at 2.3% in 2013-14 as compared to a decline of 0.8% seen in 2012-13. However agriculture in India is monsoon dependent and an agriculture led GDP growth is subject to high volatility.
The first nine months of fiscal 2013-14 did not showing any promise for the economy. Passenger vehicle sales were down 5.7% while commercial vehicle sales were down 18.4% in the April-December 2013 period on a year on year basis. January 2014 saw passenger vehicle and commercial vehicle sales down 7% and 21% respectively year on year.
The IIP (Index of Industrial Production) growth for the April-December 2013 period was a negative 0.1% while the manufacturing growth was a negative 0.6%. Consumer durables have shown a negative growth of 12.9% indication weakness in consumer demand.
Tax collection growth for the April-December 2013 period is below budgeted levels with direct tax collections growing at 12.5% against budgeted growth rate of 17.5% and indirect taxes growing at 6.2% against budgeted growth rate of 20.3%. Slowing economy has hit tax collections. The government is forced to cut plan expenditure by 20% to keep fiscal deficit within budgeted levels of 4.8% of GDP and this cut in plan expenditure will lead to further pressure on economic growth.
Trade deficit is the only bright spot on the horizon with deficit down 27% in the April-January 2014 period. Fall in gold and silver imports by 38% in this period has helped bring down trade deficit. Lower trade deficit is helping pull down current account deficit by 40% for fiscal 2013-14.
CPI (Consumer Price Index) inflation for the month of January 2014 printed at 8.79%, the first below 9% print over the last one year. Falling prices of vegetables has lowered CPI. RBI is unlikely to ease its policy stance despite CPI coming off from highs of 11.24% seen in November 2013 as it is focused on lowering long term inflation expectations.
Fed taper to continue
The Fed stayed on its asset purchase program tapering course with a reduction of USD 10 billion in its January 2014 meet. Fed has reduced its USD 85 billion a month asset purchase program by USD 20 billion since December 2013. The new Fed Chair, Janet Yellen has indicated that the Fed will continue to lower its asset purchases by USD 10 billion every Fed policy meet.
US unemployment rate fell to a five year low of 6.6% in January 2014. Fed target for unemployment rate is 6.5%. However non farm payroll numbers indicate that the US economy is not adding jobs in robust numbers with job additions of 113,000 in January 2014 against expectations of 180,000 job additions.
US inflation rate as measured by the CPI rose 1.5% in calendar year 2013, the slowest rise in three years. Fed’s measure of inflation, the core personal consumption expenditure index rose 1% in 2013, well below Fed’s target of 2%. Low inflation is prompting Fed to maintain policy rates at record low of close to zero percent.
Eurozone inflation as measured by the CPI was at 0.7% in January 2014 against 0.8% seen in December 2013. ECB target for inflation is 2%. Eurozone unemployment rate for November 2013 was revised down from 12.2% to 12.1%. Number of unemployed in the Eurozone was down by 129,000 in December 2013 on a month on month basis. ECB is maintaining rates at record lows of 0.25% to enable the economy to recover.
China exports rose 10.6% year on year in January 2014 against a rise of 4.3% seen in December 2013. Imports rose 10% against an 8.3% rise seen in December. China manufacturing PMI fell to six months low in January 2014. Inflation for calendar year 2013 was 2.6%, below official estimates of 3.5%. China’s mixed data increases the work load for its central bank that has to worry about growth, reforms, bad loans and asset price bubbles.
Japan’s CPI rose to a five year high of 1.3% in December 2013, the seventh month of consecutive rise. Japan recorded its highest ever trade deficit of USD 113 billion for 2013, double the deficit seen in 2012. The Yen has weakened by over 20% from highs against the USD over the last one and half years. Bank of Japan is targeting an inflation rate of 2% to pump prime the economy even as the government is carrying on fiscal stimulus. The Yen is expected to weaken further on the back of deficits and on the back of loose fiscal and monetary policies.
Table 1: Economic Data