Morgan Stanley sees downside risk to current 5.8% growth estimate on weak monsoons

MUMBAI: Global investment bank Morgan Stanley sees a downside risk of about 30-60 basis points or bps to its current economic growth estimate of 5.8% in FY'13 on weak monsoons and consequent impact on farm output. This will be the third downward revision of its growth forecast by the bank.

"Poor progress of the monsoon in the season thus far (14% below normal) and consequent adverse impact on area under cultivation (-6% YoY) means that the summer crop output growth will be significantly below our forecast." said India economists Chetan Ahya and Upasna Chandra in a report on rainfall trend and crop sowing pattern. "

Along with the adverse domestic conditions, the external environment has also deteriorated further, with more downside to DM (developed markets) growth. We thus see downside risk of about 30-60 bps ( one bps is 0.01%) to our current GDP growth estimate of 5.8% in F2013"

Already major global banks and brokerages including Citi, Bank of America and Stanchart among others including brokerages such as CLSA and ratings firm Crisil have scaled down their growth forecast for the year. This is because monsoons have not progresses as was envisaged earlier. Besides a slowdown in the industrial output with its impact on the services outpiut as well as a bleak global economic outlook is expected to further precipitate a slowdown.

According to the meteorological department, on a weekly basis, the total country-wide rainfall weighted by cropped area remained steady at 2% below normal for the week ended August 22 compared to the previous week.

Weekly rainfall was below normal in the states of Haryana (rice and cotton growing), Western and Central Maharashtra (cotton, pulses and rice growing), Karnataka (rice, pulses and coarse cereals), Andhra Pradesh (pulses and coarse cereals), Bihar (rice) and Uttar Pradesh (rice, maize and pulses) amongst others.

Already the impact weak monsoon are showing on food prices. Daily wholesale food prices, accelerated sharply by 21.2% y-o-y in Aug (until 23 August) compared with 18.8% y-o-y in July, noted the Morgan Stanley report.