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Indian Economic Forecasting – The Rear View effect

Posted by fairval on June 5, 2007

GDP for FY07 came in above most analyst forecasts.

For FY08, there seems to be a rather large range from just over 8% to around 10%, with most forecasts at around 8.5% or less.

This suggests a lot of economic forecasting in India is either conservative, or driven by the ‘rear view’ affect. Economists are driven too much by past trends, and are unable to come up with a number which breaks from the trend. So very few predicted over 9% for FY07, and very few are doing now for FY08.

There has been a lot of economic commentary lately about how inv/GDP ratio has risen to around 34%, substantially higher than say 3-4 years ago, and how this portends to a ‘structural recovery’ rather than a ‘cyclical’ one. That a capex boom is under way is apparent, it does not need inv/GPD ratio to tell us this. Orderbooks of cap goods companies started bulging over 2 years ago. Cap good stocks had a brilliant run in 2006. In fact, sice last many months, cap goods stocks are underperformming, since all the good news had got into the price much earlier. So investors clearly seem to be ahead of a lot of economists in India


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