Wed Feb 28 06:00:00 CST 2018

Consensus Actual Previous Revised
Change Y/Y 7.0% 7.2% 6.3% 6.4%

Economic growth weighed in at an annual 7.2 percent rate in the final quarter of calendar 2017. This was up from 6.4 percent in the previous period, slightly above market expectations and the best performance since the third quarter of 2016. It also supports hopes that the negative effects of the goods and services tax (GST) introduced in the middle of last year and the ban on high value currency notes implemented in November 2016 have started to fade.

Household consumption was up by a solid 5.6 percent on the year and government final consumption by 6.1 percent. However, it was gross fixed capital formation (12.0 percent) that showed the strongest gain. Stock building had a negative impact which should help the first quarter economy while exports rose 8.7 percent, a rate matched by imports. Of note, there was also a sizeable 7.2 percent increase in the statistical discrepancy.

Just yesterday, the Finance Ministry said that the economy has the potential to expand at an annual rate in excess of 7-8 percent on the back of domestic policy initiatives and a stronger global environment. However, financial markets still have doubts about the reliability of the national accounts, prompting another government rebuttal earlier this month. That said, as they stand, the latest figures mean that Indian growth last quarter was above that of China which, if nothing else, is probably of some psychological investor value.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Annual growth rates, the main focus, are released on a quarterly basis, normally around the end of the second month after the reference period. However, recent methodological changes have raised some doubts about of the accuracy of the data.

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.