It’s quite possibly the most depressing economic number in recent memory.
India’s annual economic growth slumped to an unexpected 5.3 percent in the January-March quarter, much below expectations. According to Reuters, it is the economy’s worst quarterly performance in a decade. Most economists had expected GDP growth at 5.9 percent-6.1 percent.
In the December-ending quarter, the economy had grown by 6.1 percent, the slowest in about three years.
The manufacturing sector showed the worst performance during the March-ending quarter, declining 0.3 percent. Agricultural growth logged in at 1.7 percent, while the mining sector rose 4.3 percent. The best performance came from community , social and personal services, which jumped 7.1 percent.
Growth for the financial year ending March 2012 came in at 6.5 percent, down from 8.4 percent a year earlier.
The numbers will shock economists and market experts, who will be wondering if the latest data will finally spur the government into taking drastic action to revive the economy.
For the entire press release on the GDP, click here.
The BSE Sensex extended losses, the 1-year swap rate fell, and bond prices held on to gains after January-March growth fell to 5.3 percent, raising expectations for interest rate cuts.
The Sensex slightly extended losses to 1.3 percent on the day. The 1-year swap rate fell 4 basis points to 7.85 percent. It was trading at 7.89 percent before the gross domestic product announcement.
The 10-year government bond yields fell 11 basis points on the day, with bond prices having gained ahead of the data on expectations for a weak number.
The rupee was holding steady at 56.42/45 to the dollar, after earlier hitting a record low at 56.52.
Darius Kowalczky, economist at Credit Agricole said the data highlights the unusual degree of weakening of the country’s economy, which is likely driven by poor investment and widening trade gap. “The data also poses a dilemma for policy makers, as they have no fiscal room to stimulate growth, while monetary easing scope is very narrow, at least for now, due to rebounding and high inflation.” He, however feels further weakening of the rupee could help a bit, but the key problem is lack of investment.
Anubhati Sahay, economist at Standard Chartered Bank said the Q4 data is shocking. It is “Even lower than lows witnessed during the financial crisis. A rate cut is a given now. We expect a 25 bps reduction in repo rate on June 18.”
Apart from poor GDP numbers, industrial output unexpectedly shrank an annual 3.5 percent in March for the first time in five months hit by weak investment, prompting increased pessimism among investors.
The weak rupee, which has shed nearly 12 percent from its 2012 high,adds to policymakers’ headaches by elevating import costs, most notably for crude oil that India buys for 80 percent of its consumption. And high inflation, stoked in part by the falling rupee, leaves the central bank little room to cut interest rates further.
With inputs from Reuters