MacroScope

India is in a cloud of economic optimism but its industrial data are in a permanent fog

Optimism the Indian economy will soon recover, despite no sign that it is anywhere near doing so, has increasingly led forecasters to overestimate industrial production growth.

Incessant official revisions to the data, after initial forecasts are proved wrong, also mean investors and companies don’t have a clear and timely view.

This too could be another thing holding back Asia’s third largest economy.

The latest industrial data came as a shock this week.

Factory output contracted by 2.2 percent in June from a year earlier, nearly twice as bad as the 1.2 percent fall predicted in the Reuters poll.

That was the eleventh month since January 2012, and the third in a row, in which economists have overestimated it.

Investor sentiment roadmap

Investor sentiment goes through various phases in an economic cycle — from optimism, euphoria to panic and depression, back to hope and optimism.

James Thomson, investment manager of Rathbones global opportunities fund, discusses the current stage of investor morale.

How to calculate the decline of decline

Analysts and strategists assessing whether there’s an economic recovery on the way are increasingly referring to “second derivatives”. It usually means a measure, say production, has declined, but not by as much as it did last month, or quarter.

Are second derivatives a strong basis for optimism? If you have to perform differential calculus to make a point, it may be a sign of desperation.

Equities markets continue to factor in a recovery, with the FTSE 100 up about 30 percent from its six-year low of March 9.