OECD indicators show slowdown easing

For the first time in two years, the OECD Composite Leading Indicators (CLIs) for India have shown a positive growth on monthly basis in April 2009, pointing to tentative signs that the Asia’s third largest economy has hit the bottom of the economic cycle.

India’s CLI expanded by 0.4 per cent to 93.9 in April 2009, compared with 93.5 in the previous month, according to data released by the Organisation for Economic Co-operation and Development (OECD). With the number still below 100, Indian economy is still classified as “slowdown”. Only a reading above 100 would indicate expansion.

The development is significant, as the CLI developed by OECD attempts to indicate turning points in economic activity approximately six months in advance. Thus, if the Indian economy has hit the trough in April this year, actual economic data would show faster growth rate from September 2009.

As per OECD’s provisional estimate, economic activity in India hit the peak of the economic cycle in April 2007. Thus, if the bottom of the economic cycle is reached in April 2009, the current slowdown has lasted for two years. The previous downturn, documented by OECD, lasted for three years between April 2000 and April 2003.

The Indian economy after registering a growth rate in excess of 9 per cent for three years ending March 2008, slowed to 6.7 per cent as per revised estimates by the Central Statistical Organisation (CSO) in fiscal 2008-09. In the three months ended March 2009, the economy grew at a much slower rate of 5.8 per cent but it was above analysts’ expectations.

Meanwhile, OECD CLIs, which covers 29 countries, for April 2009 points to a “reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, Italy, France and the UK”.

The CLI for the OECD area increased by 0.5 point in April 2009 but was 8.3 points lower than in April 2008. Similarly the CLI for the US increased by 0.2 point in April but was 10.8 points lower than a year ago.

“However, major non-OECD economies still face deteriorating conditions, with the exception of China and India, where tentative signs of a trough have also emerged,” said an OECD press release.