The Hindu Business Line : OECD data signal continued weakening of major economies

Taking the long-term average as 100, India has been on the slowdown mode since May 2008 when the indicator fell below 100 and has continued to fall every month since then.

G. Chandrashekhar

Mumbai, Oct. 10 In recent months, economic activity and in turn, growth, has been decelerating across the world, accentuated by continued slowdown in industrialised nations. This has affected consumption of a range of industrial commodities such as metals and energy products. Falling prices reflect the adverse effects of demand compression.

The outlook is likely to continue to remain weak. The OECD (Organisation for Economic Co-operation and Development) composite leading indicators (CLI) for August 2008 released on Friday indicate a continued weakening outlook for all the seven major economies including the US and those in the Euro area. The CLI for the OECD area decreased by 0.7 point in August 2008 and was 4.9 points lower than in August 2007.

OECD has described the slowdown as strong. As for major non-OECD member economies, the latest data signal expansion in Brazil, a downturn in China and Russia, and a slowdown in India. The CLI for India fell by 1.2 point in July 2008 and was 7.1 points lower than in July 2007. Taking the long-term average as 100, India has been on the slowdown mode since May 2008 when the indicator fell below 100 and has continued to fall every month since then.

Early signals

To be sure, the OECD CLI is designed to provide early signals of turning points (peaks and troughs) between upswings and downswings in the growth cycle of economic activity. The CLI provides qualitative information on short-term economic movements rather than quantitative measures.

The Index of Industrial Production data released on Friday by the government confirms the industrial slowdown.

As against the double-digit growth (10.9 per cent) recorded for August 2007, the latest number (August 2008) shows a mere 1.3 per cent. A combination of factors including tighter liquidity, falling rupee value and slowing demand is currently at work.

Until recently, a part of the western world slowdown was neutralised by growth in the BRIC economies led by China. But the latest data suggest even Chinese economic activities are slowing. So is the case with Russia. Only Brazil continues to show signs of expansion.

Slowing economic activity has a direct bearing on demand for industrial commodities such as base metals (like copper, aluminium) and industrial metals like steel. Demand destruction for metals means the market is forced to carry huge inventory with concomitant effect on prices.

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