"The economy grew at rates well below its potential in H1 of 2013, and little appears likely to lift GDP growth into the next year."
The economy is unlikely to see any recovery in the second half as the downturn is expected to engulf services and the remaining sectors after affecting fixed investment and manufacturing in the first half, Moody’s Analytics said on Wednesday.
“The economy grew at rates well below its potential in H1 of 2013, and little appears likely to lift GDP growth into the next year. The slowdown that began with a downturn in fixed investment and manufacturing will soon spread to services and the rest of the economy,” Moody’s Analytics senior economist Glenn Levine.
Moody’s Analytics is the economic research division of Moody’s Corporation and does not reflect the opinions of Moody’s Investors Services, the credit ratings agency which is also a subsidiary of Moody’s Corporation.
On the recent reform measures, Levine said reforms have stalled with no notable changes expected before next year’s elections and the steps taken to date have not been enough to accelerate private investment.
“Little appears likely to improve the tepid pace of fixed investment growth,” he added.
In FY13, the economy logged its worst performance in over a decade as it grew at just 5 per cent. Going by the IIP numbers so far, there seems not much of an improvement.
However, the government remains optimistic that the economy would clip at 6 per cent or more this fiscal.
Moody’s Analytics has not put a GDP forecast for this fiscal in the report. Already many analysts have slashed GDP forecast to as low as 5 per cent this fiscal too following rupee fall and the RBI actions on monetary tightening.
The broad industrial slowdown in the manufacturing sector illustrates the economy’s difficulties, with producers being held back by restraints related to poor infrastructure and weak demand, among others.
Noting that industrial production began to slow in 2010, Moody’s Analytics said it has since then stabilised at a rate well below potential. The near-term outlook shows no lift in activity in the second half, it added.
Noting that other parts of the economy are also weak, it said auto sales, a key gauge, have fallen for six straight months (down 9 per cent in June) while commercial vehicle sales were off 13.5 per cent. Imports have also stalled, growing just 1.9 per cent in June.