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Polls to help economy grow by 6.4% this fiscal: Goldman

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 inflation

Wall Street brokerage Goldman Sachs today projected an ‘above-consensus’ growth of 6.4 per cent for the current fiscal on factors like the upcoming general elections which, it said, will increase government spending, lower interest rates and lead to action on the policy front. 

“We reiterate our above-consensus GDP growth forecast of 6.4 per cent. The key to an improvement in activity is a pickup in the investment cycle,” it said in a report. It said higher government capex coupled with falling rates and policy reforms to ease bottlenecks and manufacturing export growth will drive investments during the ongoing fiscal. 

Yesterday, the UN pegged the calendar 2013 growth at 6.4 per cent, while the ADB last projected that the domestic economy would reach 6 per cent in the current fiscal. In the budget, the government had pegged growth at between 6.1 and 6.7 per cent. Rating agency Crisil had lowered its FY14 growth estimate to 6 per cent from the earlier 6.4 per cent earlier this week. 

Official estimates suggest the economy might have expanded 5 per cent in the recently concluded fiscal, the lowest in ten years. “The year before the elections is generally associated with increased government spending. Indeed, government spending (as a percentage of GDP) has increased the year before the elections, in each of the last four general elections,” it said. 

While stating this also increased the possibility of a higher fiscal deficit, it called it a “positive stimulus to the economy.” 

Crisil had cast doubts whether the government will be able to achieve its stated objective of reigning-in fiscal deficit at 4.8 per cent. Among other reasons cited include the expected lowering of interest rates by the RBI, besides a drive on the policy front to expedite projects. 

“Ongoing policy reforms to bottleneck infrastructure and other investments, particularly, the Cabinet Committee on Investments can help,” the Goldman Sachs report said. Additionally, other factors like the improvement in the global economic climate will also act as a “tailwind,” Goldman said. 

The report pointed out to data displaying some “green shoots” like that on the index of industrial production, exports, and non-food credit.

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Euro zone inflation continues to ease in March

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Eurozone Inflation

The annual rate of inflation in the euro zone fell further below the European Central Bank’s target level in March, official figures showed Tuesday.

The decline in upward pressures in consumer prices eases one impediment to monetary stimulus from the ECB to support the euro zone’s battered economy in coming months, and in theory makes households better off as inflation erodes less of their disposable income.

But not all countries are benefiting from the decline to the same degree. Inflation remained much higher than the average in Spain and the Netherlands in March, where falls in household incomes in real terms undermine the chances of an economic recovery.

Eurostat, the European Union’s statistics agency, said the annual rate of inflation in the 17 countries that use the euro fell to 1.7% in March from 1.8% in February, confirming an earlier estimate. The figure is the lowest since August 2010 and undercuts the ECB’s target level of a little under 2%.

The figure was in line with a forecast by economists in a Dow Jones Newswires poll last week.

Prices fell for transport fuel, telecommunications and medical services. Electricity prices rose.

The average rate masked big divergences between euro-zone member states.

Annual inflation was significantly higher than the average in the Netherlands, where the rate was 3.2% in March, and in Spain where it was 2.6%. Much lower rates of price growth were registered in Ireland, at 0.6%, and Portugal, at 0.7%. Greek consumer prices fell in year-to-year terms, by 0.2%.

FM ask banks to gear up for LPG subsidy rollout

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Finance Minister P Chidambaram today asked banks to gear up for the rollout of direct cash subsidy scheme to cooking gas (LPG) consumers throughout the country.

 “I have asked them (bankers) to get ready for the rollout of LPG for the whole country,” Chidambaram told reporters after a meeting with senior PSU bankers here. 

As a pilot project, the government has decided to give cash subsidy to LPG consumers under its ambitious Direct Benefit Transfer (DBT) scheme soon, and will cover 20 districts by May 15. 

LPG consumers will get about Rs 4,000 per annum in cash from the government, and they will have to then buy LPG at market price of Rs 901.50 per 14.2-kg cylinder. 

Currently, each consumer is entitled to 9 cylinders of 14.2-kg each at subsidized price of Rs 410.50. On each of this cylinder the government bears a subsidy Rs 435.

 There are about 14 crore LPG consumers in the country. Regarding the second phase of DBT scheme to be launched from July in 78 districts, Chidambaram said: “They (bankers) have all said that they will be ready in the 78 districts”.

 The Planning Commission would be holding meetings with the 78 district collectors.

 “We have said the lead bank managers of 78 districts will also attend the meeting,” the Finance Minister said.

 The government has already capped the number of subsidized cylinders at six per household per year, and beyond that a consumer has to pay the market price. However, some state governments are providing more subsidized cylinders and bearing the burden themselves.

 The government expects that the DBT will eliminate all ghost LPG connections and diversion of cylinders.

 In the first phase of DBT that started in January, 43 districts are being covered.

 Under the DBT scheme, subsidies and other benefits are transferred directly into the Aadhaar linked bank account of the beneficiary.

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CPI inflation to moderate to 7% by Mar ’14

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CPI inflation to moderate to 7% by Mar ’14: Morgan Stanley

Terming the consumer price index based inflation as critical to assess the domestic economy in the current environment, a research report by Morgan Stanley said the CPI reading is likely to moderate to around 7 per cent by March from the present level of 10.9 per cent.

 “We expect the CPI inflation to moderate from 10.9 per cent currently to around 7 per cent by March,” the report said. Giving the rationale behind such moderation, the report said factors like impact of slower government spending, slow rural wage growth among others, would help in reducing the sconsumer inflation.

 “Since last September, total government spending has been on a decelerating trend. Moreover, the government has controlled expenditure except interest and subsidy payments… as the government delivers fiscal consolation, it will help contain aggregate demand- thus reducing inflationary pressures,” the report said.

 It further said agricultural wages have shown signs of moderation, which would help in easing inflation pressure. “We believe this moderation, after almost five years of acceleration, will also help to lower food production costs and bring about a moderation in food and hence overall inflation,” it said.

 The report also said that other factors like slower rise in global commodity prices like oil, moderation in asset prices such as housing and slower growth in domestic demand would also help in containing CPI inflation.

 “We believe that the sharp slowdown in domestic demand will finally start weighing on CPI inflation trend over the next six months,” it said. Referring to high current account deficit and fiscal deficit coupled with slowing growth, the report said that despite growth concerns, the worst may be behind.

 “Though trailing macro data points are a cause of concern, we believe that the worst may be behind with regard to macro stability indicators. “The government has initiated steps to correct the bad growth mix (high fiscal deficit and low investment spending). We believe this will help to gradually improve the macro stability indicators,” the report said.

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ECB keeps rates unchanged

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Main rate stays at 0.75%.

The European Central Bank has kept eurozone interest rates on hold. The main refinancing rate stays at 0.75%, where it has been since July 2012.

Although the decision was widely expected, some analysts expect the ECB to cut rates in the coming months.

Mario Draghi, the president of the ECB, will hold a press conference later this afternoon to explain the decision.

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UK has already returned to growth

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UK has already returned to growth, says OECD

Hopes that Britain will avoid a triple-dip recession were bolstered after a leading forecaster said the country had already returned to growth and official figures showed the key services sector expanding at its strongest pace in five months.

 The UK economy will dodge a recession with a return to yearly growth of 0.5pc in the first quarter of this year, according to the OECD.

The UK enjoyed yearly growth of 0.5pc in the first quarter of this year, to be followed by a 1.4pc expansion in the next three months, according to estimates from the Organization for Economic Co-operation and Development.

“The UK is doing fairly well I would say … this avoids a triple-dip in that country,” said Pier Carlo Padoan, the OECD’s chief economist. “We see a global outlook improving after a weak 2012.”

The Paris-based think-tank’s growth projections compared to the UK economy’s 1.2pc contraction in the final three months of last year, as the OECD uses annualised rather than quarterly growth rates. On a quarterly basis, the UK economy shrank by 0.3pc at the end of last year.

The more upbeat outlook was echoed in the US, where officials reported that the world’s biggest economy grew faster than thought in the fourth quarter of last year, at an annual rate of 0.4pc, up from an initial 0.1pc estimate.

The news cheered Wall Street, pushing the S&P 500 share index into fresh highs as it hit 1,567 points at one point, above its 2007 all-time record.

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