India's economy shrunk to 4.4% in 1Q

It's the slowest in four years.

According to BBVA Research, adding to the dismal mood amidst slowing growth and currency depreciation, India’s GDP growth, released late on Friday, slowed to a disappointing 4.4% y/y (BBVA: 5.3%, Consensus: 4.8%) from 4.8% in 1Q13 weighed by a contraction in investment and a pullback in private consumption, offsetting higher public spending.

Here's more:

The GDP outturn is the slowest since Q1 2009. Agriculture output saw a pick up, as expected along with improving external demand, amid favorable weather conditions.

Looking ahead, we expect overall growth momentum to weaken further in Q3, given renewed pressures from currency turbulence and weakening sentiment, elevated oil prices, and delays in executing structural reforms.

Confirming the slowdown, the August PMI, released today, hit a 2½ year low of 48.5.

With limited scope for further monetary and fiscal support, expediting bold structural reforms including sharper diesel price hikes, unclogging food and raw material supply bottlenecks and easing foreign investment limits across insurance and pension sector is critical to revive India's growth prospects.

In this context, we see downside risks of a least a full percentage point to our 5.7% y/y and 6.4% y/y full year growth projection for this year and the next.

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