GDP: Growth Remains Strong in 3Q10 :: Morgan Stanley

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GDP: Growth Remains Strong in 3Q10

GDP growth remains strong at 8.9% in QE Sept
2010: The Central Statistical Organization (CSO)
announced that GDP growth in the quarter ended Sept
2010 (QE Sept 2010) was at 8.9%. This compares with
8.9% in QE Jun 2010 (revised upwards from 8.8%
reported earlier) and 8.6% in QE March 2010. The GDP
growth in QE-Sept was above our expectation of
8.4-8.6% and consensus expectation (as per Bloomberg
survey) of 8.2%. The surprise in our numbers (vs. the
actual) largely came from higher-than-expected growth
in the ‘trade, hotels, transport & communication’
subcomponent under the services segment.


The CSO has revised the GDP growth numbers for
previous quarters using the new WPI series (base
2004-05) and also subsequent revision in Index of
Industrial Production (IIP) from April 2008.

Agriculture growth accelerated in QE Sept 2010: The
agriculture output accelerated to 4.4% in QE Sept 2010
from 2.5%YoY in the previous quarter due to higher
summer (kharif) crop production. The Ministry of
Agriculture’s first advance estimate of summer (Kharif)
crop production indicated that food grain output should
grow by about 10.4%YoY this year. The growth in
mining and quarrying decelerated to 8% in QE Sept
2010 (vs. 8.4% earlier) on high base effect.

Industry output growth decelerated in QE Sept
2010: The industry segment growth decelerated to 9%
in QE Sept 2010 compared to 11.6% in the previous
quarter. Within industry, the manufacturing segment
growth moderated to 9.8% (vs. 13% earlier) partly on
base effect. Growth in the electricity, gas & water supply
and construction segments decelerated to 3.4% and
8.8% (vs. 6.2% and 10.3% in QE Jun 2010).


Services segment growth accelerated further: Growth in
the services sector accelerated to 9.8% in QE Sept 2010,
compared with 9.3% in the previous quarter. Within services,
the growth in the trade, hotels, transport & communication
segment accelerated to 12.1% (vs. 10.9% earlier). The
financing, insurance, real estate & business services growth
picked up to 8.3% in QE Sept 2010 compared to 7.9% in the
previous quarter. The growth in the community, social &
personal services segment, on the other hand, decelerated to
7.3% (vs. 7.9% in QE Jun 2010).

On the demand-side GDP growth data, CSO has made
significant revisions in the past quarter data: The GDP
growth (at market prices) in QE Jun 2010 was at 10.3%
(revised upwards from 10% earlier). Looking at the sub
components, consumption expenditure growth was revised
upwards to 8% in QE-June from 5.5% reported earlier. The
fixed investment growth was revised upwards sharply to 19% in
QE-June from 7.6% reported earlier. Similarly, net exports
contribution to growth was revised to -0.7% in QE-June from
+0.7% reported earlier. A part of it seems to be explained by
revisions in GDP deflator.

Consumption accelerated, investment slowed in QE Sept
2010: The consumption expenditure growth accelerated to
9.3% from 8% in the QE Jun 2010. Within this, both private and
government consumption expenditure growth accelerated to
9.3% and 9.2% in QE Sept 2010, respectively, (vs. 7.8% and
9% in the previous quarter). Rural consumption has improved,
due to better crop output on account of normal monsoons.

Fixed investment growth, on the other hand, decelerated to
11.1% in QE Sept 2010, compared with 19% in the previous
quarter. Net export contribution to growth was +0.2%,
compared with -0.7% in the previous quarter, as the expansion
in exports more than offset the pick-up in imports.

We see upside risks to our 8.5% GDP growth forecast for
F2011 (12-months ended March 2011): The strong services
sector growth and rise in rural demand support poses upside
risks to our F2011 GDP growth forecast of 8.5%.