CARE expects manufacturing to pick up pace in Q3, Q4FY13
CARE Ratings has come out with its report on Q1 FY13 GDP. According to the rating agency, growth in the services sectors are expected to provide a boost in the coming quarters as well and expect the manufacturing sector to improve, albeit gradually.
August 31, 2012 / 19:34 IST
CARE Ratings has come out with its report on Q1 FY13 GDP. According to the rating agency, growth in the services sectors are expected to provide a boost in the coming quarters as well and expect the manufacturing sector to improve, albeit gradually.
The Central Statistical Office (CSO) has released estimates of GDP numbers for the first quarter of this fiscal. The GDP in Q1 FY13 grew by 5.5% compared with 8.0% for the same period last fiscal.GDP growth for Q1 FY13 comes at a higher than CARE’s own estimate of 5.2%. The growth of 5.5% is mainly driven by healthy growth in construction, ‘finance, insurance, real estate & business services’ and ‘community, social and personal services’.Overall GDP growth in Q1 has slowed down from 8.0% in FY12 to 5.5% in FY13, with growth in manufacturing being near zero in Q1 FY13 (as against 7.3% in FY12).Drag downs- Agriculture registered a better than expected growth of 2.9% in Q1 FY13 as against 3.7% in Q1 FY13. This may be attributed more to the high rabi crop of FY13 which entered the market in this quarter.
- Mining and Quarrying grew by 0.1% as against a negative growth in the previous year. The near zero growth in this sector signal towards need for policy reforms.
- Manufacturing has clearly showed signs of deceleration, with growth moderating to 0.2% in Q1 FY13, as against a high of 7.3% in the previous year. As was noticed in the IIP numbers for the same period, growth has been dragged down especially by capital goods- electrical machinery in particular.
- Trade, hotel, transport & communication grew at a low rate of 4.0% (as against 13.8% in Q1 FY12). While growth in trade and transport may be linked with agricultural and manufacturing growth, the low manufacturing performance has overridden that of the farm sector.
Strong Performers- Construction registered a robust growth of 10.9% in Q1 FY13 compared with 3.5% last year. This is indicative of activity in the infrastructure space.
- Production of cement increased by 11.0%.
- -Consumption of finished steel registered a growth of 8.8%.
- Financing, insurance, real estate & business services grew by 10.8% in Q1 FY13 as against 9.4% in Q1 FY12.
- Community, social & personal services increased significantly by 7.9% in the first quarter of this fiscal (3.2% Q1 FY12). This component may be linked directly with fiscal spending.
- Electricity, gas & water supply registered a healthy growth of 6.3%.
Consumption Trend
Private Final Consumption Expenditure remained stable at 59.5% of GDP while Government Expenditure to GDP increased to 11.1 %( 10.6%). Gross fixed capital formation has been lower at 32.8% as against 33.9% in the previous year, indicating lower investment activities. However, if capital formation is defined broadly to also include change in stocks and valuables, it declined from 40.2% to 37.4%. The important observation is that investment sin valuables declined from 2.6% to 1.1% reflecting the lower demand for gold in particular. Stocks as a percent of GDP declined marginally from 3.7% to 3.5%.Prospects for the entire FY13
While growth in Q1 has come above expectations, it cannot be taken to mean a change in the overall fortunes of the economy, though the direction will in all probability be maintained during the rest of the year. We expect growth in the services sectors to provide a boost in the coming quarters as well and expect the manufacturing sector to improve, albeit gradually.Growth would be relatively stable in Q2 with no discernible improvement in manufacturing, and residual growth in agriculture. Construction growth would slow down on account of the monsoon while services would regain lost space in the following three quarters. A pick up in manufacturing could be expected in Q3 and Q4 on account of the festival season and low base effect. The farm sector however would be impacted by the drought in Q3 and recover in Q4.Assuming a growth of 0.2% in the agricultural sector, 2.8% in industry and 8.6% growth in the services sector would result in an overall GDP growth of around 5.9% in FY13. This would presumably, be achievable, in case manufacturing activity picks up during the year. Given an expectation of a 50 bps reduction in key policy rates during the year and inflation settling at around 7.5% by end-March 2013, production activity could revive on the back of higher capital investments and lower production costs.Disclaimer: This report is prepared by the Economics Division of Credit Analysis & Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report.The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
