India's non-agriculture GDP growth fell to 5.2% y-o-y in Q4 2012 from 5.8% in Q3. Since then, activity data have been mixed with a rebound in January industrial output but disappointing vehicle sales in February. Our composite leading index (CLI) for India, which has a two-quarter lead over the non-agriculture GDP, points to a prolonged bottoming-out, rather than a recovery.
This is not surprising. Economic momentum has decelerated sharply at a time of weak external demand and limited space for monetary or fiscal stimulus. The lagged effect of weak manufacturing output is hurting demand for private services and reforms will likely have a meaningful impact only after a lag.
