GDP growth will remain weak, says Morgan Stanley

 Notwithstanding the pick-up in industrial production in August, the GDP growth is likely to remain below 5 per cent for the next two quarters due to weak agriculture and slowdown in demand, a report says.

Showing signs of turnaround, industrial production grew by 2.7 per cent in August, reversing the trend of contraction witnessed during the previous two months.

“GDP growth for the quarter ended September 2012 and December 2012 will be sub-5 per cent, as weak agriculture and the slowdown in external demand hamper growth,” Morgan Stanley said in a research note.

“The pickup in industrial production in August has been largely factored in our GDP growth estimates and the country is likely to clock a GDP growth of 5.1 per cent this fiscal,” the report added.

Morgan Stanley believes that the factors responsible for the weak GDP growth include poor agricultural growth, weak investment trend, sluggish domestic market growth outlook and weakness in the service sector.

Bank of America Merrill Lynch in a research note earlier this month had noted that lead indicators still point to six months of pain and it is not until the March quarter that growth is expected to recover to 6.5 per cent levels.

“We grow more confident of our call that while the worst is over, recovery will stretch for another six months,” the BofA-ML report had said.

While reforms are a medium-term positive, immediate revival will surely depend on lending rate cuts, BofA-ML said.

Meanwhile, Inflation rose to its highest level in the fiscal at 7.81 per cent in September.