Dun & Bradstreet (D&B) gave the following key Economic forecast for the year 2011:
Real Economy:
While industrial production is expected to further consolidate in the coming months, IIP growth is unlikely to remain at the current low levels. In fact, the improving demand conditions in the economy are expected to provide support to the overall IIP growth going forward. D&B expects IIP to have grown by 4.5-5.5% during Dec-10.
Price Scenario:
Global crude oil prices that have surged to about US$ 98/bbl (on 14-Jan-11) along with the recent hike in domestic prices of petrol by oil marketing companies are expected to exert inflationary pressures in the domestic economy. D&B expects the WPI inflation to be around 8.0-8.2% during Jan-11.
Money & Finance:
Liquidity conditions which remained tight since last few months are expected to ease off to a certain extent as a result of draw down on government cash balances and liquidity support measures initiated by the RBI. In view of gradually building inflationary pressures, the RBI is expected to hike the repo and reverse repo rates by 25 basis points each in the third quarter monetary policy review. D&B expects 15-91 day T-Bill yield to average at around 6.8-7.0% and ten-year G-sec yield to average at around 8.0-8.2% during Jan-11.
External Sector:
The rupee is expected to remain range bound during Jan-11, with an upward bias, from the current levels as foreign fund inflows owing to interest rate differentials will support the domestic currency. Nonetheless, dollar demand owing to rising international crude oil prices is expected to exert some downward pressure on the rupee. D&B expects the rupee to average at around 45.1-45.3 per US$ during Jan-11.
Detailed Commentary
The IIP numbers released recently are significantly lower than our expectations and are disappointing. We had expected IIP numbers to consolidate from the high levels it had witnessed in last few months; however, such a low growth in industrial output was unanticipated. The sharp moderation in IIP growth though imparts some cautiousness on the macroeconomic front; impressive performance displayed by many other lead indicators such as bank credit growth, corporate tax collections and exports growth ensures sustainability of the current growth momentum.
“The optimism regarding the growth prospects of the economy continues to remain strong notwithstanding some moderation that is expected in the current pace of growth. However, the gradually building inflationary pressures consequent to soaring international prices of crude oil and several other commodities does pose a downside risk to the growth momentum, stated Dr. Arun Singh, Senior Economist, Dun & Bradstreet India. Dr. Singh further added, “In view of surging global oil prices, hike in petrol prices by domestic oil marketing companies and elevated prices of food articles; we have revised the WPI inflation forecast upwards to 6.5% by Mar-11. Further, given the rising inflationary pressures, the RBI is expected to hike the repo and reverse repo rates by 25 bps each in the third quarter monetary policy review. Besides, with easing of liquidity pressures to certain extent, the RBI might withdraw the additional liquidity support measures announced earlier.”
| Dun & Bradstreet's Macro Economic Forecasts | |||
| Forecast | Latest Period | Previous Period | |
| Inflation W.P.I | 8.0%-8.2% Jan-11 | 8.43% Dec-10 | 7.48% Nov-10 |
| Inflation C.P.I (I.W) | 9.3%-9.5% Dec-10 | 8.33% Nov-10 | 9.70% Oct-10 |
| INR/US$ | 45.10-45.30 Jan-11 | 45.16 Dec-10 | 45.02 Nov-10 |
| I.I.P Growth | 4.5%-5.5% Dec-10 | 2.71% Nov-10 | 11.29% Oct-10 |
| 15-91 day's T-Bills | 6.8%-7.0% Jan-11 | 6.91% Dec-10 | 6.47% Nov-10 |
| 10 year G-Sec yield | 8.0%-8.2% Jan-11 | 8.20% Dec-10 | 8.25% Nov-10 |
| Bank Credit* | 24.2%-24.5% Jan-11 | 24.4% Dec-10 | 22.6% Nov-10 |
| All figures are monthly averages *Refers to End period | |||
