Export contraction to curb GDP growth to 5.5 per cent in 2009-10: Citi

20 February 2009

India's gross domestic product (GDP) growth will moderate in 2010 at 5.5 per cent, driven by a contraction in exports, a further deceleration in investment growth and a moderation in consumption, Citi Group said in a new report, India Macroscope.

''Incremental data across sectors such as autos, real estate and exports, as well as loan growth do not paint a good picture. We maintain our view that the synchronised global recession, coupled with dramatic changes in the financial landscape, is likely to result in 5.5 per cent GDP in FY10E,'' the report said.

While the impact of the global headwinds on growth has been debated sufficiently, it is worth keeping in mind the growing impact of the tailwinds in play. These include the coordinated response to the crisis including monetary and fiscal stimulus as well as a collapse in commodity prices. Both these factors should help enable FY11 growth rise to 6.6 per cent, it added.

Given that first halh of FY09 GDP was 7.8 per cent, the FY09 GDP figure indicates that growth during Oct 08-March 09 was 6.4 per cent. This appears optimistic given that recent data has been worse than anticipated. For instance, industrial production contracted 2 per cent in December with the cumulative growth during April-December at 3.2 per cent v/s 9 per cent last year.

Exports reportedly contracted 22 per cent in January – the fourth consecutive month in a row. Likewise auto and real estate transactions have taken a knock.

The Economist Intelligence Unit in its 17 February report on country forecasts also said that global deleveraging and attempts to reduce risk exposure will continue to hit India hard. It forecasts real GDP growth of 5 per cent in fiscal year 2009-10 (April-March), after an estimated 5.3 per cent in 2008-09.