DBS pegs Q2 GDP at 5.3% on low farm yield, industrial activity

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Mumbai | Published: November 24, 2014 8:06:54 PM

The GDP growth is likely to have slowed down to 5.3 per cent in the second quarter of the current fiscal...

The report said with the second quarter GDP number, the growth in first half would be at 5.5 per cent. ReutersThe report said with the second quarter GDP number, the growth in first half would be at 5.5 per cent. Reuters

The GDP growth is likely to have slowed down to 5.3 per cent in the second quarter of the current fiscal, hit by lower farm output and subdued industrial activity, says a report.

The second quarter GDP number is likely to be announced later this week.

The economy grew at 5.7 per cent in the first quarter.

“The economy is likely to have expanded 5.3 per cent (y-o-y) in the second quarter. The slower growth can be put to weak rains affecting farm output, slow turnaround in domestic demand and subdued industrial activity,” DBS Bank said in a report.

The report said with the second quarter GDP number, the growth in first half would be at 5.5 per cent.

The farm output may have risen to 2.6 per cent, slower than 3.8 per cent in the first quarter, on account of below-normal Southwest monsoon.
Industrial production set second quarter on a weaker footing as it rose just 1.1 per cent, as compared with 4.4 per cent in the June quarter, on the back of a mere 0.1 per cent rise in manufacturing output.

Commercial vehicle sales, which is a proxy for industrial activity, may have declined by 2 per cent in the September quarter, as against a 13 per cent fall in the first quarter.

On the demand front, a modest acceleration was noted in new investment projects, accompanied by an 80 per cent quarter-on-quarter jump in revival of stalled projects.

“This suggests the capex cycle is bottoming-out but is yet to turn decisively north on infra bottlenecks,” the report said.

The second quarter profits of listed corporates picked up albeit stagnated sales, which alongside tepid indirect tax collections signal that the private sector will be slow to recover, it added.

It said CPI inflation slowed to 6.5 per cent by September from June quarter’s 8.1 per cent, but consumer durables output gave back gains.

“Even as easing inflation boosts purchasing power, a slower turnaround in industrial activity and smaller rise in the farm minimum support prices will prevent a swift revival in consumption,” the report said.

It said contribution from net exports also likely weakened in the quarter as slower merchandise export growth (in rupee terms) saw the trade deficit widen by a quarter, from year ago.

“The soft growth report coupled with easing inflation will build pressure on the central bank to ease policy in December, but is unlikely to pan out,” the report said.

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