After recording its lowest rate of expansion in four years following tepid growth of just 4.4% (y-o-y) in the April-June period, the Indian economy recovered by 4.8% in the three months to September. While the slightly stronger GDP reading has stirred hopes that growth has bottomed out and the economy is about to rebound, it remains to be seen whether a meaningful recovery will take hold. For a start, the overall economy remains weak, with activity being weighed down by high inflation, a weak rupee and a decline in investment. And even though growth in the September quarter picked up slightly, this represented the fourth straight quarter that the economy posted an expansion of below 5.0%. Moreover, while the latest GDP figure was bolstered by the agricultural sector, manufacturing activity has remained lacklustre. India’s economic woes, including its chronic fiscal and current account deficits, and stubbornly high inflation, have helped to undermine business confidence in the country. Asia’s third largest economy is also particularly exposed to swings in investor confidence, and this was clearly demonstrated by the sharp drop in the Indian rupee this summer. This stemmed from global investors off-loading emerging market assets on fears the US Fed was about to wind down its bond purchasing programme. Despite the sharp improvement in the current account gap in recent months, renewed tapering fears have kept the rupee under pressure of late.
Meanwhile, latest data releases continue to highlight the weak state of the economy, with industrial output coming in below expectations in September, while consumer price inflation exceeded the 10.0% mark during the same month. Although real GDP growth is forecast to dip below 5.0% this year, a stronger recovery of 5.4% is expected in FY14/15.
You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.