Wednesday, August 13, 2008

Economy Are Getting Stronger - Aug 13 , 2008

The signs of slowdown in the economy are getting stronger. After car sales fell 1.7% in July, the first quarter figure of industry''s performance revealed another gloomy picture. In April-June 2008, industrial growth crashed to 5.2%, against 10.3% in the same period last year.

In June, industrial growth slowed down to 5.4% from 8.9% in the same month last year as manufacturing decelerated to 5.9% from 9.7% and electricity generation to 5.4% from 8.9%. However, the June figure is an improvement over 3.8% registered in May.But, the slowdown in the industrial growth will have a direct impact on GDP growth. Industry chamber Assocham''s president Sajjan Jindal who is also MD of Jindal Vijaynagar Steel, said, it is now a matter of serious concern. We would be lucky if India achieves a GDP growth of 8% in the current fiscal as industrial production has suffered heavily.

Citigroup Global Markets, said slowdown in industrial growth in Q1 is similar to trends seen during late 1990s and given the impact of monetary tightening, GDP growth estimates will be revised downwards to 7.7% for 2008-09 and 7.9% for 2009-10. Goldman Sachs also said the June data suggests weaker industrial production has set in.A worrying factor is the slowdown in capital goods growth, which is crucial for future industrial growth. Capital goods production growth in June 2008 has declined to 5.6% from 23.1% in the same period last year. In April-June, the growth came down to 6.5% from 19.1% in the same period last year. This clearly suggests a slowdown in the investment in the industrial sector.

The growth in consumer goods sector is encouraging, considering the rise in interest rates. As RBI tightened the monetary policy to contain inflation, which pushed up the interest rates, the demand for consumer goods are likely to be affected very badly. But, the trend in June has belied that apprehension as the growth in these sectors has revived.Economists feel the revival in consumer goods'' demand is mainly on account of good monsoon and high procurement prices fixed by the government for wheat and rice. But, the high interest rate has affected investment in the infrastructure sector, which is clearly visible by the substantial decline in the production of capital goods. Growth in six core infrastructure industries, which account for 26.68% of industrial production expanded at a sluggish pace of 3.5% in April-June against 6.4% last year. Among infrastructure industries, crude production fell by 0.2% in Q1 against 0.7% a year ago.

No comments: