The Indian economy grew 6.9 per cent YoY in the third quarter, slowing from 7.7 per cent in the June quarter.

We knew that the headline was going to be weaker and this result, while disappointing, is not entirely unexpected. The Indian economy is slowing rapidly through the second half of 2011 under the weight of tighter monetary conditions and the deteriorating global outlook

The economy is now growing at its slowest pace since the second quarter of 2009 when the economy grew just 6 per cent Year on Year (YoY).

Four of the eight subcategories on the production side slowed in the third quarter. Agriculture, forestry and fishing grew 3.2 per cent YoY from 3.9 per cent in the second quarter, while mining and quarrying fell 2.9 per cent YoY and was the only subsector to register a fall in output.

The most disappointing result was in manufacturing. Production was slowest to 2.7 per cent YoY from 7.2 per cent the previous quarter. This was partly flagged by the weak IPI numbers. Also, production of finance, insurance and retail estate grew 10.5 per cent YoY. Trade, hotels, transport and communication increased by 9.9 per cent, though this was slower than the second quarter result. Meanwhil, construction perked up to 4.3 per cent YoY growth from 1.2 per cent in the June quarter

It’s been a while since we’ve seen an Indian GDP number with a 6 at the start of it. The economy is slowing rapidly and is now growing at its slowest pace since 2009 at the peak of the global recession. The pressure of higher interest rates, coupled with the deteriorating external situation, tighter credit conditions, and a fall in confidence, have all served to undermine second half growth.

This result was largely expected. The industrial production numbers have been particularly weak since the middle of the year, reflecting both slower export sales and softening domestic sales, and this showed up in the poor manufacturing figure. The export and import numbers have been softer in recent months, mirroring the slowing economy.

On the demand side, consumer demand held up reasonably well, growing 5.9 per cent YoY, though this was weaker than in previous quarters. Government consumption also held firm. The big disappointment was in fixed investment, which fell 0.6 per cent YoY following a 7.9 per cent rise in the second quarter. This was quite a big downside surprise. \

The construction numbers on the production side held up reasonably well, suggesting that spending by Indian firms on capital equipment must've fallen sharply over the quarter. This is a worrying sign and reflects both rising borrowing costs and falling business confidence. It also undermines India's medium term outlook

All in all, this is a disappointing set of numbers. The economy is struggling under the weight of higher interest rates, ostensibly to cool inflation, but they have nothing to show for this except for a corporate sector that is barely moving.

It’s difficult to see this turning around any time soon, especially as the troubles in Europe appear to have some way still to play out. We may need to revise our 2012 growth outlook from the current rate of 7 per cent and towards something like 6.5 per cent. By recent Indian standards, this is a poor performance. It looks like tough times ahead.

Glenn Levine is Senior Economist at Moody's Analytics, a division of Moody's Corporation that provides expertise in economic and consumer credit analysis, credit research and risk measurement, enterprise risk management and structured analytics and valuation.