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Charts & Analysis

2013 Q2 GDP at 4.8%, Hides Two Factors That Are Temporary



GDP for Q2 2013 ending September, is at 4.8% in real terms. This is marginally better than the Jun 2013 quarter, when real growth hit 4.4%.

India GDP Q2 2013

But that hides the real deal: That inflation is now carrying the economy on. Look at the nominal growth rate suddenly jump from last quarter’s 8% to 13%!

GDP Growth YoY

The gap between the two rates is inflation – it takes away from your growth, effectively. With 13% nominal growth and 4.8% real growth, the “inflation deflator” is 8.2%.

What might be happening here is that inflation impacts have probably helped GDP growth a little (it’s difficult to figure out what part of growth is inflation) – so it’s entirely likely that part of this 4.8% is inflation that “looks” like growth.

Looking at sector growth tells you another story:

GDP Sector Growth

This is real growth – after inflation’s backed out. Points to note:

  • Agriculture seems to have done well – we’ve had a good monsoon. But it’s Q3 that will really determine that.
  • Mining is, to put it mildly, less screwed than earlier.
  • Financial Services saves the day – it’s been doing that for the last few quarters. So we’re running our GDP up on the money thing? Wait till the defaults hit us.
  • Electricity looks good but remember, it’s a temporary thing. I noted that in the IIP numbers – the uptick was temporary.

Finally, here’s a look at Components:

GDP Components

What you can see is:

  • Government expenditure has fallen off a cliff. It saved the day in the last quarter but has come down severely.
  • Private consumption – which is 60%+ of the economy – isn’t growing that much, at +2.2%.
  • While Imports are down and exports have jumped, part of it is because of huge rupee depreciation (to 62 from the 50 levels). But a good chunk is also because of higher import duty and restrictions on gold purchases (like reducing financing ability). This is obviously temporary – eventually, gold will be “snuck in” from other sources.

Overall, the GDP number which looks marginally better than earlier hides two important points:

  • The inflation impact is high; it is likely to have lifted “real” GDP due to imprecise measurement.
  • Much of this growth is purely from the lower trade deficit. A good part of that deficit is Gold, imports of which are down due from restrictions that appeared early in the last quarter.

Both are temporary.

Markets will react on Monday as the news was at 5:30 pm, after market hours.

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