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World Economy

22

OPEC Monthly Oil Market Report – September 2017

the GST implementation. However, the GST pushed the buying of gold up and manufacturing down.

Manufacturing companies sent out their old stocks to market, holding back on production. This brought down

manufacturing sector growth from 5.3% in 1Q17 to 1.2% in 2Q17. The reasons behind low GDP growth in

2Q17 include; the medium- and short-term shocks caused by demonetisation and the GST on private

consumption; poor consumer demand and low capacity utilisation.

Graph 3 - 16: Indian GDP growth

Graph 3 - 17: Indian inflation vs. repo rate

The fact that

Gross Value Added

(GVA) (GDP minus product taxes) growth in 1Q17 was the same as in

4Q16 suggests that the waning demonetisation impact was offset by rising anxiety over the GST. It seems

the decline in growth in 1Q17 is transitory and the economy will slowly move in an upward trajectory over the

next few quarters as the impact of demonetisation and destocking fades and the positive efficiency gains

from GST start kicking in. A normal monsoon, softer interest rates and inflation, and latent demand (demand

postponed due to demonetisation) will also support consumption-led growth in the remaining quarters of this

fiscal year. That said, the economy is likely to grow at a slower pace than 7.0% in fiscal 2017, and will be

largely consumption driven. Other macro parameters such as inflation, the current account deficit and the

fiscal deficit of the central Government will remain at comfortable levels. Stimulating the investment cycle

and tackling bad debt will be the key challenges in the current fiscal year. Investment growth did pick up in

1Q17 of this fiscal year, from a 2.1% decline in the preceding quarter, but it still trails overall GDP growth.

Two months ago, we saw gold (valuable) imports rise sharply. Household savings moving away from

physical assets, especially real estate, may not suit the economy. The second largest job creator after

agriculture is the real estate sector and construction growth has already tapered.

Graph 3 - 18: Indian GDP growth by demand side

6.1 5.7

7.1

7.5

7.9

4

5

6

7

8

9

10

1Q 14

2Q 14

3Q 14

4Q 14

1Q 15

2Q 15

3Q 15

4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Sources: National Informatics Centre (NIC) and

Haver Analytics.

% change y-o-y

6.0

0

2

4

6

8

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

%

Repo rate

Consumer price index (CPI)

CPI lower target bond

CPI higher target bond

Wholesale price index (WPI)

WPI confort zone

Sources: Ministry of Commerce and Industry, Reserve Bank of

India and Haver Analytics.

-10

-5

0

5

10

15

20

25

30

35

1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17

% change y-o-y

Private consumption

Public consumption

GFCF

Exports

Imports

Sources: Central Statistics Office and Haver Analytics.