Economic Outlook: Global and India Ajit Ranade IEEMA T & D Conclave December 12, 2014
Global scenario
US expected to drive global growth in 2015 Difference from % YoY Growth October Actual October Projections Projections 2013 2014 2015 2014 2015 World Output 3.3 3.3 3.8-0.1-0.2 Advanced Economies 1.2 1.4 1.8 0.0-0.1 United States 2.2 2.2 3.1 0.5 0.0 Euro Area -0.4 0.8 1.3-0.3-0.2 Japan 1.6 0.9 0.8-0.7-0.2 Emerging Economies 4.7 4.4 5-0.1-0.2 China 7.7 7.4 7.1 0.0 0.0 India 5.0 5.6 6.4 0.2 0.0 Brazil 2.5 0.3 1.4-1.0-0.6 Russia 1.3 0.2 0.5 0-0.5 Global GDP growth forecast was reduced by 0.2 pp to 3.8% in 2015
China s economic growth is slowing 10.0 China quarterly GDP growth (% YoY) 9.5 9.0 8.5 8.0 7.5 7.0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Expect stimulus: fiscal, monetary, trade
Stock Markets doing well, Commodities not 40.0% YTD Returns (%) 30.0% 20.0% 10.0% 0.0% -10.0% S&P 500 (US) Nikkei 225 (Japan) DAX Index (Germany) MSCI Emerging Markets BSE Sensex (India) IBOV(Brazil) RTS (Russia) Commodity Index -20.0% -30.0% S&P 500 (US) Nikkei 225 (Japan) DAX Index (Germany) MSCI Emerging Markets BSE Sensex (India) IBOV(Brazil) RTS (Russia) Commodity Index Indian stock markets have performed the best; rose by 33% (YTD returns) Commodity prices have trended downwards in 2014 mainly due to China s economic slowdown Iron ore and brent prices sharply fell by 43% and 27%, respectively
Year of the Strong Dollar. But Rupee holding 11.0 9.0 7.0 5.0 3.0 1.0-1.0-3.0-5.0-7.0-9.0-11.0 Dollar Index Euro How the currencies fared during 2014 (%) Japanese Yen Australian dollar Canadian dollar Developed market currencies Brazilian Real South African Rand Turkish Lira Indonesian Rupiah Termed Fragile Five in 2013 Indian Rupee Current account Country balance as a % of GDP Russia 2.6 Eurozone 2.3 Japan -0.11 India -1.7 Canada -2.8 Indonesia -3.0 Australia -3.5 Brazil -3.8 South Africa -5.2 Turkey -6.0 As of June 2014
Indian Economy
All dressed up, but there are bottlenecks
Mismatched infrastructure!
Growth recovery expected to be gradual y-o-y% 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 GDP Agriculture Industry Services Source: CSO Manufacturing growth fell sharply to 0.1%(y-o-y) in Q2 FY15 from 3.5% previously
Recent strong boost from government spending 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Pvt. Consumption Expenditure Govt. Consumption Expenditure Gross Fixed Cap. Formation Source: CSO Gross fixed capital formation showed negligible growth of 0.02% in Q2 FY15 after recovering sharply in Q1
PMI shows promise 10.0 Core Sector growth rate (%YoY) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 India s manufacturing PMI rose to a 21-month high of 53.3 in November from 51.6 in October (Jan-Sep average: 51.8) Eight core industries rose to a four-month-high of 6.3% in October on the back of better output in coal, refinery products and electricity
Railway freight and cargo growth is healthy Source: Morgan Stanley
Leading indicators: still mixed signals Source: Morgan Stanley Cement production picking up gradually ; steel production decelerating
Revival in stalled projects Rs Billion 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 New investments Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Rs Billion 500 450 400 350 300 250 200 150 100 50 0 Mar-08 Sep-08 Mar-09 Sep-09 Revived Projects Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Source: CMIE Stuck up investments have been revived as the policy logjam has reduced New investments sharply fell in FY12-14 but improved sentiments should reverse the trend
Investment projects cleared
Inflation trending downwards 12.0% Inflation: WPI and New CPI(%) 100% Contribution to CPI inflation 10.0% 80% 8.0% 60% 6.0% 40% 4.0% 2.0% 0.0% WPI CPI 20% 0% Jan/12 Mar/12 May/12 Jul/12 Sep/12 Nov/12 Jan/13 Mar/13 May/13 Jul/13 Sep/13 Nov/13 Jan/14 Mar/14 May/14 Jul/14 Sep/14 Jan/12 Apr/12 Jul/12 Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 CPI: Miscellaneous CPI: Clothing, Bedding and Footwear CPI: Housing CPI: Fuel and Light CPI: Food, Beverages and Tobacco Contribution of food inflation to CPI remains high at 55%- 60% Lower MSP increases, moderation in rural wages and falling commodity prices would help ease inflation next year RBI expects CPI inflation to average around 6% in the next 12 months RBI has hinted towards rate cuts early next year
Exports growth has decelerated 27 17 7-3 Exports growth (%) Imports Growth (%) Trade Balance ($ bn) (RHS) -5-7 -9-11 -13-15 Oil Imports(%YoY) Non-oil imports(%yoy) -30% -20% -10% 0% 10% 20% 30% 40% Apr/13 Jun/13 Aug/13 Oct/13 Dec/13-13 -17-19 Feb/14 Apr/14-23 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14-21 Jun/14 Aug/14 Oct/14 India s export growth turned negative (-5%) in Oct14, for the first time since Apr14 Import growth eased to 3.6% in Oct14, on the back of reduced oil imports Gold imports stood at 17-month high of $ 4.2 bn in Oct14 (driven by festive demand)
India Outlook Growth around 6 to 6.5% in FY16 Inflation moderating to 6 to 6.5% Crude oil and energy (coal) prices low Possibility of rating upgrade Interest rates down by around 1% GST possibility in FY17 Risks: inflation, water management, skills Biggest reform: GST, reduce inspector raj, enhance enforcement raj
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