Karela Fry

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Slow growth

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The Bombay Stock Exchange

The WSJ reported today:

The world economy may be slowing, with early signs that the pickup in growth in China and Brazil is coming to an end, the Organization for Economic Cooperation and Development said Monday.

The Paris-based think tank’s composite leading indicator of economic activity in its 31 members rose to 103.9 in March, from 103.3 in February.

“OECD composite leading indicators … point to a slowdown in the pace of economic activity,” the think-tank said. “In most OECD countries signs of slowing growth are tentative, but stronger signals have appeared in France and Italy, and some evidence of a potential halt in expansion is emerging in China and Brazil.”

The OECD’s leading indicators are designed to provide early signals of turning points between the expansion and slowdown of economic activity, and are based on a wide variety of data series that have a history of indicating swings in future economic activity. Two hundred and twenty-four series are used in total, or between 5 and 10 for each country.

According to the leading indicators, economic activity in the G-7 and Russia hit a trough in May 2009, recovering thereafter. In China, the trough came in February 2009, while in India it occurred a month earlier.

ET reported a somewhat different piece of news:

India’s economy is likely to lose pace even as China and the US are expected to see good expansion in the coming months, says Paris-based think tank OECD.

“The CLIs for Italy, Brazil and India are pointing to slowdowns in economic activity relative to trend,” OECD said today.

The grouping notes that these indicators are pointing to some divergence in the pace of economic activity across major economies.

In March, CLI for India stood at 99.4 as compared to 99.7 in February. CLI for India has been marginally falling since November 2010.

Last week, Finance Minister Pranab Mukherjee had projected the Indian economy to expand 8 per cent in 2011-12, lower than the budgetary estimate of 9 per cent growth.

To resolve this difference in views, it is best to go to the source: the press release from OECD, which says

Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, are pointing to some divergence in the pace of economic activity across major economies. Compared with last month’s assessment, this month’s CLIs point to a slower or stable pace of expansion in most EU countries and continued expansion in North America, China and Russia.

The CLIs for Canada and China signal regained momentum in economic activity and the CLIs for the United States, Germany and Russia, continue pointing to expansion relative to trend. Based on the CLIs, the pace of expansion in France and the United Kingdom will be stable, albeit slow. The CLIs for Italy, Brazil and India are pointing to slowdowns in economic activity relative to trend.

Because of the exceptional circumstances the country is facing, it is not possible to provide reliable estimates of the CLI for Japan at this stage.

The crucial phrase is slowdowns in economic activity relative to trend. This is not news. On May 6, BS reported a scaling down of expectations for growth from 9% to 8%:

India might have to settle with eight per cent growth in its gross domestic product (GDP) this year if the current level of oil prices did not recede, Finance Minister Pranab Mukherjee said here on Thursday, signalling a revision in projection aligned with that of the Reserve Bank of India (RBI).

Earlier this week, RBI had projected eight per cent growth in GDP for the year, one per cent lower than the government’s earlier outlook, on the back of rising oil prices, high commodity prices and persistent risks in the Euro-zone nations.

Inflation has been the big problem for us in recent months. We also know this from the fact that the RBI increased its base rates in order to soak up liquidity. The OECD report on the economic outlook projects the inflation rate as 5.8% in 2011 and 5.1% in 2012 (down from 11.3% in 2010) and the GDP growth rate to be 8.2% in 2011 and 8.5% in 2012 (down from 9.1% in 2010).


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