India’s Aug industrial output seen up 8.7% y/y

India’s Aug industrial output seen up 8.7% y/y

By Reuters

New Delhi: India’s industrial output in August is forecast to have grown 8.7% from a year earlier, a sign of moderating activity that would add to expectations official interest rates have peaked.

The median forecast of 10 analysts in a Reuters poll put annual growth above July’s unexpectedly weak 7.1%, but, if realised, it would be the first time since February to April 2006 that growth has been below 10% three months in a row.

“Mining, electricity should do well. Manufacturing should rebound in August," said Shubhada Rao, chief economist at Yes Bank in Mumbai.

Analysts said data last week showing annual growth in six key infrastructure sectors of 9% in August boded well, as infrastructure accounts for nearly a quarter of industrial output.

But, against that, demand for small cars and motorcycles has slowed this year due to higher interest rates, as most vehicles in India are purchased with a loan. Data on 12 October showed auto sales fell 5.9% in the first half of the 2007/08 fiscal year to end March.

Further, the rupee has risen 12.5% against the dollar this year, more than any other Asian currency, putting pressure on exports and weighing on the manufacturing sector, which accounts for 15% of gross domestic product.

However, policy makers expect a spate of Hindu and Muslim festivals to boost demand into the end of the year, as people traditionally splurge on consumer goods at this time.

The central bank and the government expect economic growth to moderate to around 8.5% in 2007/08 from 9.4% in 2006/07. The central bank has raised its short-term lending rate five times since June 2006, most recently in late March. Its next scheduled review of monetary policy is on 30 October. The following table shows forecasts for August industrial output.

(Percentage change from a year earlier) ---------------------------------------------,23,36,45,52