Friday, August 29, 2008

India's Q2 Economic Growth Slows to 7.9%

It's a global world, so we need to keep our eyes open to the world stage. India "slows" to 7.9% GDP growth which while lower than the 5 year average is a rate Western countries would dream to have. The question is when and at what pace do they bottom? Their central bank has been extremely aggressive at raising rates to try to stem inflation.
  • India's economic growth slowed to 7.9 percent in the April-June quarter from 9.2 percent in the same period last year amid a slump in manufacturing, the government said Friday. Growth, which has averaged 8.8 percent over the past five years, is at its slowest pace since 2004, government data showed.
  • The decline in the growth rate was widely anticipated and comes after months of monetary tightening, as authorities have tried to reign in surging inflation.
  • "When you have monetary tightening, you do get lower growth. That was expected," he said. "But it's not terribly low; 7.9 percent is still high by historical standards.
  • In 2005, 456 million Indians -- 42 percent of the population -- were living on less than $1.25 a day, according to the World Bank.
  • Subir Gokarn, Standard & Poor's chief economist for the Asia-Pacific, said such bounding growth (10%) is not likely to return to India until the government embraces tough reforms to encourage private investment in infrastructure and to liberalize the labor market.
  • Gokarn said volatility in the manufacturing sector began last September and has been driven by declines in interest-rate sensitive sectors like transport equipment, construction, and consumer durables.
  • Inflation in India has been raging at 13-year highs, prompting the central bank to hike the nation's key interest rate by 125 basis points and the cash reserve ratio -- the amount of money banks must keep on hand -- by 150 basis points since April.
  • Meanwhile, below-average rainfall could imperil agricultural growth, which declined to 3.0 percent in the most recent quarter from 4.4 percent a year ago. About two-thirds of Indians depend on agriculture for their livelihoods

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