No turnaround in economic momentum anytime soon: Barclays

Moneycontrol Bureau

Investment bank Barclays does not expect any meaningful turnaround in India’s economic momentum anytime soon. The economy grew 5.3% during July-September, as consumption—the pillar of strength so far—demand continued to show weak growth.

According to economists Siddhartha Sanyal and Rahul Bajoria, weakness in usually resilient segments like consumption and domestic trade suggests continued sluggishness in overall economic activity.

Here is Barclay's assessment of the second quarter GDP figure:

Consumption demand remains weak: Private final consumption expenditure grew 3.7 percent YoY in Q3 (averaging  around 4.6 percent in Q1-Q3 2012), markedly lower than the average of around 7.6 percent during the previous five years. 

Weak consumption: The weakness in consumption is has intensified over the past three quarters. Given the macro backdrop, with investment momentum remaining significantly below its trend levels and without any clear signs of a turnaround, the persistent weakness in consumption is worrisome.

Agriculture: It recorded growth of 1.2 percent YoY in Q3, despite widespread weather-related problems for most of the quarter. While this played a part in restraining growth in the quarter, we think the sector's performance in the next quarter, when the summer crop is harvested, could be worse.

Trade, hotels, transport and communications: Weak growth. This sub-segment under services has traditionally posted strong and resilient growth. However, the expansion of around 5.5 percent YoY during the first three quarters of 2012 is well below its longer term average of more than 10 percent. 

Investment demand: Was a tad higher (4.1 percent YoY in Q3) than the average of 2.25 percent during the previous four quarters. However, this was a modest uptick compared with the longer term trend. Also, given fluctuations in the data for this segment, it might be premature to interpret the rise as confirming the start of a turnaround.