GDP Release: Core Views Revisited
In line with our estimates, full-year real GDP growth for FY2012/13 (April-March) came in at 5.0% as the recently-released data showed Indian growth ticking up ever so slightly to 4.8% year-on-year (y-o-y) in Q113 from a revised 4.7% in the preceding quarter. The latest figures were also largely in line with consensus expectations. Below, we briefly flesh out our key takeaways from this latest GDP release:
|India - GDP by Expenditure at Constant Prices|
The marginal uptick in headline growth in the final quarter of FY2012/13 further bolsters our view that economic growth has bottomed out and that a material bounce is to be expected in the quarters ahead. Our current projections see full-year real GDP growth improving to 5.5% this fiscal year. That said, the Indian economy remains historically subdued, as growth is still a long way off the 7.0%-plus average clip witnessed over the past five years.
The resurgence in total domestic demand growth in H212 - when it strengthened from a low of 3.3% in Q212 to 5.2% in Q412 - took a breather at the start of calendar 2013 as the rate of expansion eased to 4.3% in Q113. Nonetheless, we continue to believe that domestic demand growth will rise this fiscal year, supported by key factors such as the Reserve Bank of India (RBI)'s easing of monetary policy since April 2012.
On a related note, restocking activity continued to contribute significantly to headline growth in Q113 as expected (and as it has done so through the whole of FY2012/13), registering real growth of 76.0% y-o-y. Considering that the cyclical build-up of inventories typically lasts several quarters, we continue to expect such activity to provide a positive tailwind this fiscal year.
Encouragingly, our primary doubts regarding the extent of the expected growth bounce in India due to its lingering twin deficits (elevated current account and fiscal shortfalls) were somewhat assuaged by the latest GDP numbers. Indeed, we highlight that real public consumption growth has slowed to a 16-quarter low of just 0.6% y-o-y as of Q113. Nevertheless, while real import growth has eased to a 13-quarter low of 3.3% y-o-y as of the same quarter, we highlight that the latest monthly trade data (up to April) continue to show a stubborn trade deficit.
Finally, even though export growth disappointed in Q113, remaining in negative territory for the second straight quarter, we continue to believe that an export recovery of sorts is in the offing as developed world demand continues its slow recovery. Our global team forecasts average US and EU real GDP growth of 2.4% and 0.6%, respectively, in the period 2013-14, which implies improved growth from their respective lulls in 2011 and 2012.
|India - Exchange Rate, INR/US$|
A Look At The Markets
Given that the 4.8% headline GDP release for Q113 was largely in line with market expectations, we do not expect any direct and significant financial market impact from it in the short-to-medium term. Indeed, the headline figure is largely sentiment-neutral and thus unlikely to sway the already bearish sentiment surrounding Indian assets in general, which have seen marked losses of late. Crucially, in light of the uneventful nature of this most recent data release, technical factors are likely to continue dominating market trajectory.
|Bounce To Continue|
|India - 1-Year OIS, %|
In particular, we highlight the Indian rupee, which has had a poor time of late since breaking below the long-term support trend-line of its year-long pennant formation. Even though the unit looks a tad overdone to the downside and some consolidation may be on the cards (with the daily relative strength index [RSI] presently at 81.9), the recent bearish break from this continuation pattern suggests to us that the rupee will hit its previous all-time low, at the very least. Taking a look at the swap markets, in line with our view, the 1-year OIS has seen its rates moving north over the past few weeks, largely due to technical factors - hitting and respecting the bottom end of its downward trend-channel, coupled with divergence on the RSI. We continue to see the market rising, signaling a pause in the RBI's easing cycle.