India’s 4Q2012 GDP came in at 4.5% yoy, weakness in growth driven by services sector, in part due to higher-than-expected fiscal consolidation. Industry growth showed some uptick but continues to remain weak. We think the activity weakness will also carry forward to Q12013. Real GDP: +4.5 yoy vs. GS forecast: +4.8% yoy, Bloomberg consensus: +4.9% yoy.
Weakness in growth was driven by the services sector, community and social services in particular, which contributed to 30bps of the slowdown in growth compared to the previous quarter. This is mainly due to the government’s efforts to reduce the fiscal deficit.
Industry GDP growth showed a small uptick, led by the manufacturing and electricity sectors. Overall industry growth continues to be subdued, owing to low investment demand, general underlying weakness in activity, and in part due to continued bans in the mining sector.
Agriculture GDP continued to be impacted by a delayed monsoon, growing only 1.1% yoy as against a 10-year average of 3.2% yoy in the quarter.
Data from the expenditure side showed a small uptick in GDP led by private consumption and fixed investment. Government consumption declined, in line with fiscal consolidation.
The weak GDP growth reading today increases the probability of monetary policy loosening in RBI’s March 19 monetary policy meeting, where we expect a repo rate cut of 25 bps.
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