Mon Aug 31 07:00:00 CDT 2015

Consensus Actual Previous
Change Y/Y 7.4% 7.0% 7.5%

Economic growth proved somewhat disappointing last quarter. Total output expanded 7.0 percent versus a year ago, down from 7.5 percent in the January-March period and comfortably short of expectations. (Note that doubts about the accuracy of the GDP data persist in the wake of substantial methodological changes introduced earlier this year.)

Growth came mainly from the trade, hotel, transport and communications subsector where activity was up 10.3 percent on the year. Manufacturing and agriculture both achieved a 6.5 percent rate and government expanded 8.9 percent. However, elsewhere expansion rates were relatively sluggish, including utilities at 5.0 percent, financial, insurance, real estate and professional services 6.3 percent and construction just 4.4 percent. Mining and quarrying grew only 1.0 percent.

Talk of a possible interest rate cut at the RBI's September 29 meeting was given a significant boost earlier this month by news of a surprisingly sharp fall in July inflation to a record low of 3.78 percent. Amidst increasing pressure from the government for another ease, today's below par update on the real economy will only serve to fuel such speculation.

Looking a little further ahead, retiring Finance Secretary Mehrisi today indicated that the government will be stepping up its plans to introduce a new committee that will determine the country's monetary policy in the future. Changes to the Reserve Bank Act needed to create the new panel which will comprise appointees from the government, RBI and independent members are expected to be finalised by the end of the current fiscal year, if not sooner.

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The GDP report paints an image of the overall economy and tells investors about important trends within the big picture.

GDP is the all inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report paints an image of the overall economy and tells investors about important trends within the big picture.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects. Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.

The quarterly national accounts series are not published in seasonally adjusted form. The publications contain growth rates in comparison with the corresponding quarter of the previous year. The Quarterly Gross Domestic Product (QGDP) estimates are now released by the CSO on the last working day after two months of the end of a quarter. Data are for the prior quarter. Data released on February 28, 2013 are for the fourth quarter 2012.

To the extent that it was feasible, the accounts implemented the recommendations of the System of National Accounts (SNA), 1993 and 2008 prepared under the auspices of the Inter Secretariat Working Group on National Accounts comprising of the European Communities (EUROSTAT), International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD) United Nations and the World Bank.