Source: Bloomberg, Goldman Sachs Economics Research.
 
 
September Industrial Production Index (IP) growth recovered to 4.8% year on year (yoy), from the historic low of 1.4% yoy in August. It was higher than the consensus forecast of 4.1% yoy and largely in line with our expectation of 5.0% yoy. The monthly momentum (seasonally-adjusted) rose by 1.2% mom in September versus a 3.2% mom fall in August (see Exhibits 1 and 2). For the April-September months, IP grew 4.9% yoy versus 9.5% yoy in the same period last year.
 
Recovery in capital goods. Growth in capital goods rebounded to 18.8% from August’s low of 0.9% yoy and 9.2% yoy in the first five months of the year. The capital goods monthly momentum rose to 6.6% mom compared to an average 0.2% mom fall in the April-August months. Growth in consumer goods softened to 5.6% yoy from 6.6% yoy in August, as non-durables slowed sharply, although durables held up well.
 
Growth, interrupted. August’s record-low IP number was an exaggeration and although September’s print marked some improvement, it continued the slowing trend we have been seeing in the last few months. Recent activity data on exports, non-oil imports, excise duty collections and the Purchasing Managers Index, have been much weaker than expected. We think the large negative global and domestic financial sector shocks will continue to slow activity across the board in capex plans, exports growth, and consumption demand. We have revised our GDP growth number for FY09 to 6.7% from 7.5% and for FY10 to 5.8% from 7.0%. We expect industry to grow by 4.0% yoy in FY09 from 8.1% yoy in FY08. For our analysis on the impact of the financial sector shock on corporate, bank, household and government balance sheets, and negative feedback loops, see India: Growth, interrupted, Asia Economics Analyst 08/21, November 10.

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