Friday, March 13, 2009

Signs of Recovery?

Even as US jobless claims continued to rise, retail sales slipped and businesses slashed inventories for the fifth continuous month, JPMorgan reported some signs of recovery. According to Larry Cudlow, consumer incomes, after tax and adjusted for inflation, have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices. Housing affordability is at a record high. Purchasing-manager surveys are now bottoming out and the Treasury curve has been normalizing from its inverted shape, usually taken preceding a recession. Barclays too reported that commodity prices, including oil, have started to bottom out and are likely to rise in the second quarter. China's economic leaders held that according to economic statistics, the economy was already reviving in response to swift action to counter the shock of the global financial crisis. In India too, even though Industrial output dipped in January, but a strong double digit (15.4%, yoy) growth reported by the Consumer Goods sector hinted at recovery in demand and easy credit availability. FDI to India has shot up by 90% during the April-November period of the current fiscal, despite the global crisis conditions. One can only hope that Indian infrastructure would be toned up in the near future with strong government investment, as more than a third of corporate heads have gone on to say in a study conducted by KPMG and EII, that Indian infrastructure is very much inadequate to support their growth plans. Govt spending in this sector would also help to revive demand as earnings of workers in labour-intensive sectors are falling; average earnings was down by 3.5% per month in the third quarter of this fiscal. With the INR plunging to record lows, the labour-intensive Indian textile industry hopes to gain, as this export-oriented industry as these goods become cheaper in the international market due to the falling rupee.
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1 comment:

Anonymous said...

I think India's in for a see-saw ride in 2009. There will be bad news (such as export demand) matched by spurts of good news (such as the FDI jump in January), but I don't think we can label these quickly as signs of recovery. The overall trend is still downward, compared to India's experience the last eight years.

I do commend you for quickly publishing well-documented insights about the Indian economy. Thanks.

Jalal Alamgir, Ph.D.