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Services part of GDP data to be most keenly watched

Services part of GDP data to be most keenly watched
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First Published: Sun, May 30 2010. 08 45 PM IST
Updated: Sun, May 30 2010. 08 46 PM IST
The government’s gross domestic product (GDP) data for fiscal 2010, due on Monday, is expected to show growth of 7.2% for the full year, according to the Central Statistical Organisation’s advance estimates released in February and the Reserve Bank of India’s (RBI) latest survey of professional forecasters. GDP growth for the March quarter was estimated at a median 8.4% by the RBI survey. The industrial production data for the March quarter has been very robust as have the HSBC Purchasing Managers’ indices on both manufacturing and services, and there’s a strong likelihood that growth will be stronger than forecast.
Clues from the industrial production data indicates that while the growth rate in capital goods production has increased compared with the December quarter, growth in consumer goods has slowed a bit. Capital formation should, therefore, account for a higher proportion of GDP in the March quarter, while the share of consumption, both government and private, should decline. The share of consumption in GDP has risen in the last couple of years on account of the stimulus measures and low interest rates. The Index of Industrial Production (IIP) data on consumer durables, though, shows no signs of a slowdown. Growth in the inventory component of GDP will also be watched closely to see if companies have been stocking up in anticipation of better times. Change in stocks accounted for just 0.7% of GDP in the December quarter, against 1.3% in the year-ago period and 3.5% in December 2007.
There are some indications, though, that production growth may have already peaked. The IIP data shows that industrial growth has been steadily decelerating since December. This is not entirely due to the base effect, with seasonally adjusted numbers showing month-on-month drops in production. The HSBC Manufacturing Purchasing Managers’ Index (PMI), which measures month-on-month growth, also shows a marginal slowdown, from 58.5 in February to 57.8 in March and further to 57.2 in April.
Data from overseas also suggests a deceleration in growth. The Markit Flash Eurozone PMI report for May says: “Other forward-looking indicators also suggest that growth may have peaked. First, service providers’ expectations of activity levels over the coming year slipped to a three-month low in May, and the manufacturing new orders:finished goods inventory ratio dropped to an 11-month low.” A key measure of future US growth, the Economic Cycle Research Institute’s weekly index of lead indicators has fallen to a 39-week low. China is deliberately trying to slow down its economy.
In India, however, the HSBC Services PMI for April shows that services output has reached a new cycle high and HSBC Asia economist Robert Prior-Wandesforde has pointed out that “the modest slowdown in industrial activity indicated by the last couple of manufacturing PMIs is being more than offset by a pick-up in service sector activity. In other words, GDP growth looks set to strengthen and we wouldn’t rule out a quarter or two of double-digit gains in the economy as a whole.” It is, therefore, the services part of Monday’s GDP data that will be most keenly watched. RBI, though, could derive comfort from lower oil and commodity prices as well as the recent weakening of the rupee against the dollar.
The government’s gross domestic product (GDP) data for fiscal 2010, due on Monday, is expected to show growth of 7.2% for the full year, according to the Central Statistical Organisation’s advance estimates released in February and the Reserve Bank of India’s (RBI) latest survey of professional forecasters. GDP growth for the March quarter was estimated at a median 8.4% by the RBI survey. The industrial production data for the March quarter has been very robust as have the HSBC Purchasing Managers’ indices on both manufacturing and services, and there’s a strong likelihood that growth will be stronger than forecast.
Clues from the industrial production data indicates that while the growth rate in capital goods production has increased compared with the December quarter, growth in consumer goods has slowed a bit. Capital formation should, therefore, account for a higher proportion of GDP in the March quarter, while the share of consumption, both government and private, should decline. The share of consumption in GDP has risen in the last couple of years on account of the stimulus measures and low interest rates. The Index of Industrial Production (IIP) data on consumer durables, though, shows no signs of a slowdown. Growth in the inventory component of GDP will also be watched closely to see if companies have been stocking up in anticipation of better times. Change in stocks accounted for just 0.7% of GDP in the December quarter, against 1.3% in the year-ago period and 3.5% in December 2007.
There are some indications, though, that production growth may have already peaked. The IIP data shows that industrial growth has been steadily decelerating since December. This is not entirely due to the base effect, with seasonally adjusted numbers showing month-on-month drops in production. The HSBC Manufacturing Purchasing Managers’ Index (PMI), which measures month-on-month growth, also shows a marginal slowdown, from 58.5 in February to 57.8 in March and further to 57.2 in April.
Data from overseas also suggests a deceleration in growth. The Markit Flash Eurozone PMI report for May says: “Other forward-looking indicators also suggest that growth may have peaked. First, service providers’ expectations of activity levels over the coming year slipped to a three-month low in May, and the manufacturing new orders:finished goods inventory ratio dropped to an 11-month low.” A key measure of future US growth, the Economic Cycle Research Institute’s weekly index of lead indicators has fallen to a 39-week low. China is deliberately trying to slow down its economy.
In India, however, the HSBC Services PMI for April shows that services output has reached a new cycle high and HSBC Asia economist Robert Prior-Wandesforde has pointed out that “the modest slowdown in industrial activity indicated by the last couple of manufacturing PMIs is being more than offset by a pick-up in service sector activity. In other words, GDP growth looks set to strengthen and we wouldn’t rule out a quarter or two of double-digit gains in the economy as a whole.” It is, therefore, the services part of Monday’s GDP data that will be most keenly watched. RBI, though, could derive comfort from lower oil and commodity prices as well as the recent weakening of the rupee against the dollar.
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First Published: Sun, May 30 2010. 08 45 PM IST