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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Indian Recovery on Track


The ECRI Indian Leading Index, designed to anticipate expansions and recessions, increased marginally from 167.2 in May to 167.7 in June. Further, the growth rate of the leading index, a harbinger of speed-ups and slowdowns, hovered around the May level of 11.5%, much higher than the 7.7% growth in April and 5.3% in February.

Thus, the level and the growth rate of the leading index signal that the modest recovery that is currently underway is expected to continue.

Signs of a modest recovery are evident from the increase in the DSE-ECRI Indian Coincident Index, a composite index of output, income, employment and sales that monitors current economic activity. The index rose to 158.9 in June from 157.9 in April and 150.7 a year ago. Its growth rate was 3.2% in June compared to less than 1% a year ago.

That an industrial recovery is clearly underway is apparent from the 6.4% growth in the industrial production index in July, up from 2.6% in the corresponding month last year. Industrial growth has, in fact, doubled to 4.7% year-on-year from April to July 2002, as against 2.3% in the corresponding period last year.

Strong growth is also predicted by the Leading Index for Exports that is a composite of leading indices of India's major trading partners and heralds growth in the exports sector. The Leading Index for Exports grew by 9.6% in May compared to a decline of 34% a year ago.

The global economy is crawling out of its worst recession in a quarter century. As usual, the US needs to be the engine of this revival. It is important to recognize that the US economy is indeed in a recovery, with GDP having risen at a 3% annual rate in the last three quarters, which is sub-par for a recovery but still positive. Unfortunately, the other major economies are in still worse shape, with Japan possibly headed into a double-dip recession, and Germany not yet in a clear recovery.
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