Both trade and consumption – factors that we had expected to provide positive support to growth this year – disappointed in the first two months of 2014, relating to the anti-corruption efforts, which affected consumption, and the soft DM recovery. We revise our Q1 sequential growth forecast down to 5% from 6.7% previously (annualized).
Expect sequential growth to pick up on more supportive policy and external factors, as well as easing financial conditions
The support for a sequential pickup includes diminishing sequential impact from anti-corruption and pollution controls, improving trade outlook, and easing financial conditions (currency depreciation and lower interest rate). Policy adjustments, such as allowing participation of private capital in previously restricted areas, possible acceleration of fiscal outlays, and/or incremental fiscal measures, may also help. Barring major further downside growth surprises or a significant policy shift, we expect no RRR cut and continued gradual deceleration of money and credit growth.
Growth risks are balanced, but uncertainties are still large
The reform agenda poses risks on both sides, given their lumpy effect on the economy. There have been frequent yet sizeable cyclical swings in recent years, mirroring the complex policy agenda amid a soft global backdrop. We expect the government to navigate through another mini cycle this year, though with some tolerance of slightly lower growth than the official target of 7.5%. March data will be important for early signs of recovery.
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