US economy goes into reverse as fears grow over

recovery
US economy shrinks in first quarter for the first time in three years, raising
doubts over Federal Reserve's next move
Revision to US GDP has spooked markets on Wall Street sending the dollar lower Photo: AP
By Katherine Rushton, US Business Editor

29 May 2!"
#he Ameri$an e$onomy went into reverse in the %irst three months o% the year& new
%ig'res reveal& stoking %ears that the US re$overy is still m'$h more %ragile than hoped(
)%%i$ials had tho'ght that US Gross Domesti$ Prod'$t *GDP+ grew ,y the miserly
e-'ivalent o% (!p$ a year in the %irst -'arter& ,'t revised %ig'res released on #h'rsday
showed it had a$t'ally shr'nk ,y the ann'al e-'ivalent o% !p$ . the %irst time it has
reversed in three years(
#he $ontra$tion marks a startling $hange %rom the previo's two -'arters& when the
e$onomy grew at the ann'al e-'ivalents o% 2(/p$ and "(!p$ respe$tively(
#he %all is also m'$h sharper than e0pe$ted( 1$onomists were prepared %or the (!p$
%ig're to ,e revised downwards& ,'t most tho'ght the world2s largest e$onomy had
shr'nk ,y aro'nd ("p$& a$$ording to $onsens's %ig'res $ompiled ,y 3loom,erg(
#he US re$overy took a ,a$kwards step in the %irst -'arter& most likely the res'lt o%
many parts o% the $o'ntry having ,een ,attered ,y e0treme weather&4 said 5hris
Williamson& $hie% e$onomist at Markit( 67owever& $'rrent indi$ators s'ggest this was
merely a temporary set,a$k in an otherwise ro,'st re$overy& pointing to a strong
re,o'nd in the se$ond -'arter(4
#he likely re,o'nded has immediately %'elled e0pe$tations that the US 8ederal
Reserve $o'ld raise interest rates ,e%ore the s'mmer(
1$onomists said Ameri$a2s 'n's'ally ,itter winter kept $ons'mers away %rom the
shops and made $ompanies hesitant a,o't making large $apital o'tlays( #he revised
%ig'res showed ,'sinesses were even more 'nnerved than %irst tho'ght( 3'siness
spending %ell ,y !(/p$& in$l'ding a 9(:p$ drop in o'tlays on o%%i$e ,'ildings(
5ompanies also spent less on sto$kpiling 6inventory4& or goods to sell %'rther down the
line& as they sold o%% prod'$ts they had already hoarded in the previo's two -'arters(
7owever& the ,a$klog was not as ,ad as %eared(
#here were also some ,right spots to the harsh $onditions& as people paid more %or
ho'sing and 'tilities s'$h as heating( #hey also dramati$ally in$reased spending on
health$are& as they h'rried to enroll on President ),ama2s %lagship A%%orda,le 5are
A$t . adding the e-'ivalent o% a %'ll per$entage point to ann'alised GDP(
Economy expands !" percent in F#$, looks to
%odi for rebound
& 'orker loads bricks onto a vehicle near a construction site of a residential complex in (e' )elhi %ay *+, ,+$!

3; RA<1S7 =UMAR S>?G7@Fri May 30, 2014
-Reuters. / 0ndia's economic gro'th picked up marginally from a decade lo' in the
fiscal year ended %arch, but pro/business (arendra %odi's thumping victory in the
recent general election has stoked optimism of an investment/led turnaround in the
coming quarters!
&sia's third/largest economy gre' !" percent in ,+$*1$, slo'er than an official
estimate of !2 percent and higher than !3 percent gro'th a year earlier! 0t marks the
second straight year of sub/3 percent gro'th / the 'orst slo'do'n in more than a
quarter of a century!
Economic gro'th for the quarter to end/%arch came in at !4 percent from a year
earlier, compared 'ith !5 percent estimated by analysts in a Reuters poll and a
revised !4 percent gro'th in the previous three months!
67e are not able to yet see!!!ho' the economy 'ill gro' but certainly the mood is
upbeat,6 said &!%! (aik, chairman at the country's biggest engineering firm 8arsen 9
:oubro, 'ho expects gro'th to pick up to 3!3 percent this fiscal year!
;ro'th stuck belo' 3 percent is disappointing for an economy that boasted of a near
double/digit economic expansion until a fe' years back and 'as 'idely expected to be
one of the main drivers of the global economic recovery!
0t also poses a challenge for the ne' government to generate enough <ob opportunities
to employ the $+ million people 'ho enter the country's 'orkforce every year! (e'
)elhi reckons the economy needs to gro' 5 percent a year to prevent a demographic
disaster!
%odi 'on 0ndia's first outright parliamentary ma<ority in three decades 'ith a pledge
to boost gro'th and create <obs, raising hopes among investors for a turnaround led by
spending on infrastructure!
(inety/three percent of =E>s in a polled carried out by one of 0ndia's industry
chambers F0==0 said they expect a substantial improvement in the near/term
economic situation follo'ing the election of a strong government!
60t is likely the infrastructure pro<ects 'hich have been held up for a long time!!!'ill
hopefully begin to move,6 said (aik! 67e 'ill see the impact of it more like in &ugust,
September, because it takes time for things to move!6
=?&88E(;ES
=apital investment contributes nearly *3 percent to 0ndia's economy, but it contracted
an annual +!$ percent in the fiscal year that ended in %arch!
@ro<ects 'orth 4!, trillion rupees -A$+3!$ billion. 'ere shelved last year due to
bureaucratic gridlock, according to =%0E, an economic think tank, the highest in the
past $5 years!
%odi's reputation, assiduously built 'hile running the 'estern state of ;u<arat, of
speeding up implementation of infrastructure pro<ects and promoting manufacturing
has raised hopes of a similar push at the national level!
&rvind @anagariya, an economics professor at (e' #ork's =olumbia University 'ho is
tipped to get an advisory role in the government, has called on the ne' administration
to revamp the cumbersome tax regime and boost capital spending!
But that's easier said than done! States 'ield much of the po'er in approving pro<ects,
'hile only a quarter of approvals come from central agencies! ?igh corporate leverage
and rising bad loans at 0ndian banks are also 'eighing on investments!
Stressed loans in 0ndia / those categorised as bad and restructured / total A$++ billion,
or about $+ percent of all loans! :he debt/equity ratio of 0ndian firms, mean'hile, has
hit a t'o/decade high of 2"!2 percent, according to (omura!
60nvestor sentiment has changed but government needs to follo' it up 'ith action to
address structural bottlenecks,6 says %!S! Unnikrishnan, managing director at capital
goods maker :hermax, 'ho expects a gradual recovery!
Short/term steps to stimulate economic activity could also raise concerns about the
ne' government's commitment to reduce the fiscal deficit to !$ percent of ;)@ this
fiscal year!
Fiscal belt/tightening helped narro' the fiscal deficit to !3 percent in ,+$*1$, belo'
a revised official estimate of !4 percent and lo'er than !2 percent a year ago,
government data sho'ed on Friday!
&dding to the gro'th challenge is an adverse global economic climate that is hemming
in the country's exports gro'th! :he sector accounts for nearly a quarter of the
domestic economy!
Equally 'orrisome are the prospects of belo'/average monsoon rains this summer,
'hich could hit farm output and fuel inflation! :hat 'ould make it tougher for an
inflation/focused central bank to lo'er interest rates to support gro'th!
@ersistently high inflation and elevated interest rates have crimped consumer demand!
=onsumer goods output, a proxy for consumer demand, has gro'n <ust once in the
past $$ months!
ECUBER&(=E
?opes of an economic revival have attracted copious capital inflo's, triggering a rally
in the country's financial markets!
For some ebullient investors, this is the beginning of the strongest bull market!
:he Sensex is already the best performing equity index in &sia this year! :he rupee,
too, has hit an $$/month high to the dollar!
Such is the euphoria that Dim >'(eill, 'ho had once called 0ndia the biggest
disappointment among the BR0= economies, is asking the South &sian nation to be
labelled as one of the 'fabulous five' economies instead of the 'fragile five'!
>'(eill coined the term BR0= in )ecember ,++$ to <ointly describe the four biggest
developing economies / BraEil, Russia, 0ndia and =hina!
:he 'fragile' tag came into vogue 'hen the most vulnerable emerging markets 'ere
roiled by capital outflo's from %ay to September last year after the U!S! Federal
Reserve hinted it 'ould 'ind do'n its monetary stimulus!
Unnikrishnan of :hermax, cautions against such 6irrational6 exuberance! 6& child is
born! 0t is expected he 'ill do 'ell and earn good money,6 he says! 6But he is not going
to earn money today!6
-A$ F 32!+$3+ rupees.
-Reporting by Ra<esh Gumar SinghH Editing by Dacqueline 7ong.