CSO Advance Estimate: GDP to grow at 7.1% for FY2009

CSO released the advance estimate of GDP today for FY2009. GDP is expected to growth at 7.1% higher than market expectation of 6.8%.

Historically it is observed that the preliminary estimates can be revised but usually adjustments are modest.



GDP grew at 7.9% and 7.6% in first 2 quarters resulting in GDP growth of 7.8% for 1H FY2009.

With 7.1% growth for FY2009, GDP is expected to grow at 6.4% in 2H FY2009 (see table below). Note that industry growth is assumed at 3.1% in 2H FY2009 while the actual output for Oct-Nov 2008 was only 1%. It is a possibility that GDP will be revised downward in May as incoming data in Jan, Feb show continuous decline



GDP by activity: Slowdown is broad-based across the three main sectors:

Agriculture output growth is estimated to have fallen to 2.6% yoy in FY09 from 4.9% in FY08, the weakest since FY2005. The sector now only accounts for 17% of GDP, although more than 50% of people still rely on it. Excluding agriculture, GDP growth rose a respectable 8.1% in 2008/09, down from 9.9% in 2007/08.

Industry to grow at 4.8% from 8.1%. Within the industry, manufacturing and construction to decelerate significantly to 3% and 2.4% in 2HFY09 from 5.3% and 10.5% in 1HFY09. The growth in electricity, gas and water supply, however, is expected to pick up.

Services to grow at 9.6% from 10.9% driven by double-digit increase in "trade, hotels, transport and communication" as well as a pick up in "community, social and personal services" to 9.3% from 6.8%. The community services will be the strongest since 1999/00 and points to the various fiscal stimulus spending by the government.




Bottomline:

Overall, while the economy is slowing but it is certainly not hard landing like most other Asian economies. We expect slowdown in investment and private consumption, while government consumption will stay strong.

The cyclical low will be reached in the 1Q FY2010. We expect a modest recovery thereafter driven by Govt’s fiscal measures, sharp fall in commodity prices, India’s oil and gas production coming on stream, trade recovery and some impact of earlier monetary easing.

RBI will continue to use its monetary tools to boost the economy.