PMEAC projects economic growth at 6.4% in 2013-14

The Primer Ministers Economic Advisory Council (PMEAC) has released the Review of Economy 2012-13, which includes the councils projections for 2013-14. The projections of PMEAC on various economic indicators are as follows

GDP Growth

* Expected pick-up in the pace of economic activity in the course of 2013-14 should be able to take growth from the present level of around 5% in 2012- 13 to about 6.4% in 2013-14.

* On expectation of normal or mostly normal rainfall, farm sector growth is projected at 3.5%.

Inflation

* The recent moderation of WPI inflation may not sustain in to 2013-14

External Payments, Trade & CAD:

* Council expects exports to grow at a modest pace in the first quarter of 2013-14, and gradually pick up momentum in the second and third quarters of the fiscal year.

* Overall, for the year 2013-14, merchandise exports are expected to approach $328 billion, a rate of growth of 10.8%.

* Merchandise imports are expected to grow by 9%, close to $536 billion, leaving a merchandise trade deficit of $208 billion, about 7% more than in 2012-13.

* On BoP basis, this would correspond to $213 billion or 9.9% of expected GDP, an improvement from the estimated 10.9% in 2012-13.

* For the year 2013-14 the Council expects that oil prices will rise by over 4% and that the net oil (including LNG) import bill will be higher at $125 billion. Once again, the increase in the net oil import bill will be driving the overall increase in the merchandise trade deficit.

* Some moderation in the level of import of gold and silver imports during 2013-14 that would come down to $45 billion from $56 billion in 2012-13 and $62 billion imported in 2011-12.

* On the services side, seeing the weaker than expected earnings for the third quarter, we factor in a smaller expansion such that ITES and remittances bring in $141 billion in 2013-14 compared to the estimated $128 billion of 2012-13, a growth of 10%.

* Negative balance on net investment income is expected to increase further to $28 billion in 2013-14.

* CAD would be $100 billion (4.7% of GDP) in 2013-14, comparable to the estimated $94 billion (5.1% of GDP) in 2012-13.

Projection for 2013-14 has some downsides

* Demand for gold imports does not abate and expectations do not materialize, as was the case in 2012-13.

* Merchandise exports fail to show growth, in a repetition of 2012-13, if the external environment does not improve.

* Service sector exports may grow at a pace slower than expected, in conjunction with higher than anticipated negative balance on net investment income.

* Spike that may occur in oil prices in the event of military conflict or heightened expectations of such conflict in the Middle East.

Upside potential

* Success in encouraging both merchandise and service sector exports and also, by reducing avoidable imports.

* A near-miraculous fall in our appetite for gold

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