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Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
Emerging Economy June 2009 Indicus Analytics
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Emerging Economy June 2009 Indicus Analytics

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Highlights …

Highlights
• Economic slump has bottomed out – expect slow recovery ahead
• 2009-10 growth forecasts will be revised upwards by most as the year progresses
• Expectations of global growth resurgence fuels commodities and crude prices
• Dollar dives, rupee surges to 47 - more trouble for exporters ahead
• Fuel price deregulation on the cards
• But all is not well – and overheated stock markets need to cool a bit

India: Kal, aaj aur kal

The numbers all seem to be looking up, the stock markets all seem to be rising once again, and cheer is back. There is spring in the air. One wonders what happened suddenly to make everything so nice. Anyhow, things as predicted are improving – largely because of heavy government interventions internationally. The lower interest rates in India are also starting to have their impact – this was all predicted, as interest rate reductions take some time to play out. But what is also predicted is that things will take a few months more to stabilise - we estimate growth for this financial year to be an unexciting 6.6%.

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  • 1. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx The Emerging Economy – Monthly Newsletter from Indicus Analytics 3rd June 2009 Highlights • Economic slump has bottomed out – expect slow recovery ahead • 2009-10 growth forecasts will be revised upwards by most as the year progresses • Expectations of global growth resurgence fuels commodities and crude prices • Dollar dives, rupee surges to 47 - more trouble for exporters ahead • Fuel price deregulation on the cards • But all is not well – and overheated stock markets need to cool a bit India: Kal, aaj aur kal The numbers all seem to be looking up, the stock markets all seem to be rising once again, and cheer is back. There is spring in the air. One wonders what happened suddenly to make everything so nice. Anyhow, things as predicted are improving – largely because of heavy government interventions internationally. The lower interest rates in India are also starting to have their
  • 2. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx impact – this was all predicted, as interest rate reductions take some time to play out. But what is also predicted is that things will take a few months more to stabilise - we estimate growth for this financial year to be an unexciting 6.6%. Meanwhile companies in many sectors will continue to be cash starved, jobs will be lost, new hiring will remain low. So while things will get better, don’t expect too much. The trouble is that the situation was so bleak a quarter ago that any small improvement has a big impact on our collective psyche. The financial market types have just not learnt anything – over-reacting is built in their DNA. Let’s hope another bubble is not created. At the same time everyone – including economists – is blaming economists for not predicting the fall. But we know of at-least ten well known economic thinkers who were writing that something was going very wrong, these ‘good times’ were heading for a crash. Swami Aiyar of ET, was actually week after week, increasing his probability of crash figures. No one wanted to listen to them then. And now again, no one seems to listen when anyone who has any sense is pointing out an impending crisis - governments should not spend this much – we are creating a bigger problem than we tried to solve. Hopefully the new UPA government will be a bit more conservative than the last one. The Budget should reflect on the need to get back to some revised form of FRBM, ideally with a roadmap. With growth looking up, it is time for the government to begin to step back. What worries us is the volatility in prices – whether in crude, forex, commodities, grain etc. – the rupee which had fallen below 52 to a dollar in early March has now
  • 3. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx swung up past 47 to a dollar on 1st June. Crude which had fallen to a low of $ 35 a barrel in December is now trading close to $70. In May, the Reuters- Jefferies CRB Commodities index rose 14%, its highest monthly gain since 1974. Firms, governments and consumers must keep themselves aware of the ‘surprises’ that the markets can continue to throw at them, given that there are still many unresolved issues lurking in the global economy. In short, the financial and commodities markets are still not working in a sane manner nationally and internationally; don’t listen to the people who man them. Don’t listen to the corporate bigwigs. Don’t listen to the, yes, economists who say things are back on track. And don’t listen to any government that says they have it all under control. India will at the very least face two pressures in the coming quarters and years – on the price and forex rate fronts. And high deficits will not help. But we have a good team running the show. We wish the new government good luck in the months and years ahead. We have high expectations from them. PS. Please visit our new homepage for interactive time series graphs of economic indicators http://www.indicus.net/ Sumita Kale and Laveesh Bhandari 3rd June 2009, Indicus Analytics Dr. Sumita Kale is Chief Economist, and Laveesh Bhandari is Director, Indicus Analytics. They can be contacted at sumita@indicus.net and laveesh@indicus.net.
  • 4. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx Economic Growth • GDP for 2008-09Q4 comes in at 5.8% with full year growth at 6.7%, revised down from January estimate of 7.1%. • Q3 numbers were revised upwards from 5.3% to 5.8% growth as agricultural numbers were stronger, as were community, defence and public services growth. • The Markit PMI survey of 500 firms (earlier known as the ABN-AMRO NTC survey) showed resurgence in May in manufacturing activity, with the index at 55.7 in May compared to 53.3 in April. More importantly, the new orders index rose to 59.9, the highest since September. • IIP numbers for March showed a steep decline by 2.3% from last March, even as provisional estimates for December and February were both revised upwards. • December IIP growth had been first set at a negative 2%, now revised to a final minus 0.2%. • April saw higher growth for cement production at 12.32% and sales at 13.03% exceeded March growth estimates of 10.43% and 10.35% respectively. • Maruti and Hero Honda continue their winning streak with double digit growth in May with 10% and 23% growth respectively as their rural market focus paid off. Other manufacturers, including BMW are now relooking strategy in smaller towns to boost sales. • Telecom added 11.09 million subscribers in the wireless network, bringing teledensity to 37.94. • Recovery in the Baltic Dry Index , which measures the shipping freight costs for commodities. This index had hit an all-time high of 11,793 on May 20 2008, and breached a 22 year low of 663 in
  • 5. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx December. It has now crossed the 3,000 mark for the first time since October. • Boosted by coal(13.2%), cement (11.2%) and electricity(6.0%), April IIP for infrastructure industries grew by 4.3%, compared to 2.3% last April. Steel showed positive growth of 1.6% over last April, when it had declined by 0.6%. • Rail freight traffic increased by 3.05% in April over the last year. • Air passenger traffic going through a slump – domestic passenger traffic fell by 15.4% in March, while international passenger traffic fell by just 1.8%. In air cargo, international freight has fallen harder at 5.5% in March, while domestic cargo has dropped by 2.4% over last March. • Naukri Jobspeak index on hiring fell again in April, though April and May are usually low hiring months. The index is down 32% from its July levels. This index began in July 2008, there are no year on year growth numbers. Read Shipping rates ride out the storm http://www.business-standard.com/india/news/shipping- firms-ride-outstorm/359726/ India’s 2009-10 growth forecasts to 7% http://www.livemint.com/2009/06/01114926/India8217s- 200910-growth-f.html?h=E
  • 6. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx Inflation • While provisional WPI inflation has remained low averaging 0.4% in April and May so far, it is the upward revisions for March data that point to inflationary pressures in the system. • CPI numbers finally released put inflation lower than previous months for CPI AL at 9.09% in April. • April CPI IW however stands at 150, a rise from the level of 148 which it had held since October (except a dip to 147 in December). Inflation for April therefore is 8.70%. • Crude oil has surged back again sharply to cross $65 a barrel and China has raised prices by 6-7%. • NCDEXAGRI index shows a decline over the month of May in spot prices of 20 agricultural commodities. On 29th May, the index was higher by 7.2% than last year. Read BBC World Service Food Price Index http://news.bbc.co.uk/2/hi/business/8059560.stm China raises prices 6% to7% on gasoline, diesel fuel http://online.wsj.com/article/SB1243810342310 70303.html A little hope a dangerous thing for commodities http://www.reuters.com/article/ousiv/idUSTRE5512582 0090602
  • 7. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx Interest Rates • Yield on the 10 year benchmark gilt trended slightly upwards at the end of May, touching 6.6941% on 29th May. • With large government borrowings in the offing this year and no official borrowing schedule out as yet, yields are expected to harden slightly, even as there is pressure on the RBI to cut rates further given the low growth and inflation numbers. • While corporates are asking for a 400-600 basis point cut in lending rates, bankers are reluctant to cut more than 50-100 basis points. (Read interview with Dr. Mohan below for views on bank compulsions.) • Even though inflation numbers are low world over, policy rate have now more or less reached stable levels – Australia kept the rate unchanged at 3%, South Korea, Thailand are seen as done with their rate cuts, Bank of England is expected to hold rates at the low of 0.5%. Read Interviews with Rakesh Mohan http://www.livemint.com/2009/05/27173009/Government -has-space-for-more.html http://www.business-standard.com/india/news/weve- handled-crisis-much-better-than-anyone-else- inworld/359685/ Federal Reserve puzzled by yield curve steepening http://www.reuters.com/article/wtUSInvestingNews/idUST RE54U1NZ20090531 Factbox: Global Interest Rates 2009
  • 8. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx http://www.reuters.com/article/usDollarRpt/idUSGLOBAL2 0090601 Exchange Rates • Exports in April were valued at 33.2% lower in dollar terms than April 2008 (16.4% in rupee terms), while imports fell by 36.6% in dollar terms and 20.6% in rupee terms. • Oil imports at $ 3.6 billion in April 09 were 58.5% lower than April 08, while non-oil imports at $12.1 billion were 24.6% lower than previous April. • This brings the trade deficit interestingly, lower at $5.004 billion in April 09 compared to $8.75 billion in April 08. • FII net inflows rose from $ 1300.70 million in April to $ 4144.80 million in May. • As capital inflows continued into emerging economies, with better news from Asia, the rupee surged up from its 50.22 to a dollar at the end of April to 47.29 at the end of May. Read ECB’s Constancio sees no accelerated dollar fall Recommended People in large cities earn more but save much less The other imbalance The economics of chota recharge Why some cities are getting younger and why some are not
  • 9. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx India is witnessing a durables revolution Beyond the fields Are speculators evil? How cities define the size of households
  • 10. Indicus Analytics, An Economics Research Firm http://indicus.net/Newsletter/Emerging_Economy.aspx For query or placing orders on Indicus Products please contact Indicus Analytics Pvt. Ltd. 2nd Floor, Nehru House, 4 Bahadur Shah Zafar Marg New Delhi- 110002. Phone: 91-11-42512400/01 E-mail: products@indicus.net www.indicus.net

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