Q1 GDP likely at sub-5%, no rate cut until July: CLSA
If the forecast is to come true, 1Q13 GDP growth will be the second consecutive sub-5% outcome for India.
India will report 1Q13 GDP on May 31 and the data will also wrap up GDP growth for FY13 (fiscal year ending 31 March). In a recent note on Indian GDP preview, CLSA estimates 4.9% Y-o-Y GDP growth for the first quarter of new fiscal, which is slightly better than the 4.5% logged in the prior quarter. Although a sub 5 percent real GDP growth and an improving WPI inflation will trigger expectations of a rate cut, the Reserve Bank of India is likely to cite trade deficit, pressure on rupee and elevated retail inflation as reasons to desist from easing repo rates in June, maintained CLSA. The central bank will most likely wait until monsoon pans out in July before taking a decision on repo rate cut.
If the forecast is to come true, 1Q13 GDP growth will be the second consecutive sub-5% outcome for India. Full-year FY13 growth will be in line with the official advance estimate of 5% compared to 6.2% in FY12. CLSA believes there is a high probability of the full-year GDP growth being revised up but the timing remains unclear. As is typical with India’s quarterly GDP statistics, revisions to prior data could cause the actual outcome to deviate from the forecast.
The CLSA report reads thus:
"Indeed, non-agricultural GDP growth in 1Q13 is forecast to have remained unchanged at 5.2% YoY in 4Q12. Growth would have been lower in the absence of a favourable base effect. India’s economic growth is bottoming but the pick-up will be gradual and uneven. It is dependent on government’s actions to get the delayed investment projects going. A meaningful recovery will be possible only after the general elections, which are scheduled to be held by May 2014 but could be in October-November this year."