Has GDP Growth Bottomed Out? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 1 November 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Earlier this week, the RBI raised interest rates by 25 basis points in an effort to combat persistently high inflation. According to their estimates, inflation will remain at or above 9% if there is no policy action. And since 9% is unacceptably high, the RBI is pursuing the policy of raising interest rates.

What is perhaps more telling about the RBI's decision to raise rates is that they don't view it as a significant threat to growth. They have forecasted India's GDP growth at 5% for 2013/14, and this is higher than the 4.5% we have had for the last year or so. In the current context, 5% growth is a good number, and could mark the start of increasing future growth. If we look at forecasts further into the future, the World Bank is forecasting growth in 2014/15 to increase to 6.2%.

Thus, RBI and World Bank certainly believe that growth has bottomed out, i.e. we have reached the lowest point and are now turning the corner. It seems as though the stock market share this view as well. The Indian market indices have hit record highs this week. This is unusual considering that GDP growth has been at its lowest levels for the last 10 years.

The only logical conclusion from the behavior of the stock market is that future growth is expected to increase. Some economic indicators are already pointing to this. Foreign direct investment (FDI) showed a 35% increase during the first half of 2013. The currency crisis that we faced just two months ago is no longer a threat.

While there are plenty of encouraging signs leading to higher leading GDP growth, this is far from guaranteed. Many of the problems that caused our growth to suffer in the first place have not been fixed. This includes corruption, inefficiency in government, poor infrastructure, and a weak manufacturing sector.

It is important we do not get complacent. The fact that GDP growth is bottoming out is a good thing. But GDP growth still remains at levels that are far too low. We need growth to get back to 7-8% before we should be content with our economic performance.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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1 Responses to "Has GDP Growth Bottomed Out?"

BL SHARMA

Nov 3, 2013

Growth.... Growth ... Wrowth ... every one requres, but no is taking about inflation.... 5% growth resulted 10% inflation then what does the growth mean.

If we make growth without being inflation then in real term we achieve something... which is not possible at the current postion.

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