India's growth outlook remains dim: Moody's

Although the general election results buoyed market sentiment in India this week a global recovery hinges on development in the US, and India’s gross domestic product (GDP) growth for fiscal 2009-2010 will likely further decelerate to about 5 per cent, according to a research note by Moody’s Economy.com.

The report noted that the victory of the incumbent Congress Party-led coalition has ensured continuity in policy direction and also created hopes for further economic reforms.

In fact, the Sensex and rupee both surged following the announcement of election results, as the longer-term outlook of India has brightened. Reforms are likely to commence in long-anticipated areas such as banking, insurance and agriculture.

However, the upbeat sentiment in India may fade when the March quarter GDP numbers are released next week, according to the report. It pointed out that although India has not been crippled by the global turmoil in the same way as its more externally oriented Asian neighbours, it has still been hurt in various aspects. The robust export performance seen in the December quarter likely turned negative in the opening months of 2009. Meanwhile, facing falling profits, firms have become increasingly cautious, curbing investment and halting hiring plans.

Private consumption and gross fixed capital formation likely slowed sharply in the March quarter. Moody’s Economy.com expects year-on-year GDP growth to have decelerated from an already-disappointing 5.3 per cent for the December quarter to 4.5 per cent for the March quarter, taking the fiscal 2008-2009 expansion to about 6.3 per cent.

The note said the pace of slowdown may be moderating, but a solid recovery is not expected until 2010. Moody’s Economy.com forecasts the US will bottom out in October but the recovery will be gradual.