New Delhi: The economic growth in the March quarter will be around 6 percent against an initial market expectation of 6.5-7 percent due to sharp contraction in the industrial production coupled with policy inertia, a research report by Standard Chartered Bank said.
"We expect GDP growth to have slowed to 6 percent in Q4 from 6.1 percent in the previous quarter, thwarting initial market expectations (including ours) of an improvement to 6.5-7.0 percent y-o-y," the report said.
Elaborating the reasons behind the dip in growth, the report also said that contraction in March IIP, slower production of capital goods, weaker consumption trend would be the key reasons behind fall in GDP.
It also noted that Industry has long suffered from policy inertia, high inflation, high interest rates, supply bottlenecks and slowing global demand, which had reflected in March IIP numbers, which in turn will pull down GDP growth numbers in the fourth quarter of last fiscal.
The factory output data shrank 3.5 percent in the last month of the last fiscal. The research report also said that services sector would also report slowdown in Q4 of FY12.
"In Q3 of FY12, its (services sector) growth (8.9 percent) slipped below 9 percent for the first time in two years, and the second time in seven years. We expect growth to have slowed further in Q4 to 8.7 percent y-o-y, for several reasons," the report said.
It, however, added that a marginally better performance in the financial sector as credit offtake improved probably provided some support in the last quarter of FY12.
Referring to monetary policy actions going ahead, the report said that the central bank may cut repo rate by 25 basis points (0.25 percent) on June 18 as a measure to prop up the economy.
"Non-food and non-fuel inflation (core inflation) printed below 5 percent for a second consecutive month in April 2012.
This is likely to allow the RBI to cut the repo rate by another 25 bps (from the current 8.00 percent) on 18 June, at its first mid-quarter monetary policy review of FY13," it said adding slower global commodity prices and increased concerns about the euro area will also support a rate cut.
Source: PTI
