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IIP data shock = cloud over first-quarter

GDP

Megha Mandavia

Saturday, Jul 13, 2013, 7:35 IST | Place: Mumbai | Agency: DNA

But second half looks better, thanks to good monsoon and govt moves.

Industrial production unexpectedly contracted 1.6% in May from last year, shocking economists

and putting a question mark on the economic recovery this year.

The manufacturing sector, which makes up 76% of industrial production, shrank 2% from lastyear, the government data showed. The mining sector also contracted 5.7%. To add insult to

injury, Aprils IIP data was revised downward to 1.9% from 2.3% earlier.

It is pretty bad. We had expected weak numbers but not negative growth. This year people

expected a better year, but there are no signs of recovery yet. It is concerning, said A Prasanna,

chief economist at ICICI Securities Primary Dealership.

According to a poll conducted by Bloomberg, economists were expecting a growth of 1.4% in

Industrial Production Index (IIP), but these numbers put a question mark on growth assurances

given by the government. GDP growth slowed to mere 5% in the last fiscal, slowest in a decade.

This sharp slowdown from Aprils 1.9% growth does not bode well for GDP growth in the first

quarter of 2013-14, credit rating agency Crisil said in a report.

A contraction in output was witnessed in basic, capital as well as consumer goods a

phenomenon that was last observed in February 2009.

Economists said weak auto sales numbers and disappointing show on exports due to weak

external demand have impacted IIP numbers. Exports contracted by 1.1% in May. The slowdown

is also a reflection of weakening consumer demand and slowing investment.

The average IIP growth numbers are just 0.2% for the first two months of the June quarter,

against average 1.5% in first two months of the January-March quarter.

If the trend of negative growth in IIP continues for June, GDP growth for the June quarter could

be impacted to the extent of 40 basis points, according to Axis Bank chief economist Saugata

Bhattacharya. IIP makes up for about a fifth of GDP.

However, HDFC chief economist Abheek Barua is optimistic about the second half of the year.

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7/27/2019 IIP Data Shock

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We should get a good monsoon and exports should pick up in the second half. Government

execution will start manifesting in the second half. I wont give up on the prospect of recovery

despite these weak numbers, said Barua.

Source:http://www.dnaindia.com/money/1860447/report-iip-data-shock-cloud-over-first-quarter-gdp

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