India’s animal spirits stabilise as virus rages across economy

Bloomberg September 25 | Updated on September 25, 2020 Published on September 25, 2020

Car sales, a key indicator of consumer demand, rose 14.1% in August from a year earlier   -  REUTERS

Five of eight high-frequency indicators gained in August

India’s economy showed signs of stabilising in August with manufacturing and services gradually improving even as coronavirus cases escalated across the country.

Five of the eight high-frequency indicators compiled by Bloomberg News gained last month, while two were unchanged and one deteriorated. That kept the needle on a dial measuring so-called animal spirits steady at 4 — a level arrived at by using the three-month weighted average to smooth out volatility in the single-month readings.

A strong rebound is still a far way off though, as a surge in virus cases continues to disrupt activity and has led many economists to downgrade their growth forecasts for the year.

Business activity

Activity in India’s dominant services sector continued to pick up, with the main index rising to 41.8 in August from 34.2 in July. While that’s a marked improvement from April’s record low of 5.4, a number below 50 suggests it’s still in contraction territory.

Manufacturing bounced back into expansion after four successive months of contraction, with the Purchasing Managers’ Index (PMI) rising to 52 from 46 in July. That helped push the composite index for August to 46 from 37.2 a month earlier.

Also read: Hiring sentiment in India weakest in 15 years, says survey

Exports: Exports suffered because of tepid global demand, with shipments falling 12.7 per cent in August from a year earlier. Farm exports and shipments of drugs and pharmaceuticals bucked the trend, growing 22 per cent and 17 per cent, respectively. On the imports side, demand for gold was strong ahead of the festival season, resulting in a widening in the trade deficit.

Consumer activity: Car sales, a key indicator of consumer demand, rose 14.1 per cent in August from a year earlier, although the growth was from a weak base last year. Retail sales too showed signs of picking up, even though the number of consumers venturing out to buy goods was still 70 per cent below the year-ago level, according to ShopperTrak.

Those increases didn’t translate into greater demand for loans. Central bank data showed credit grew 5.5 per cent in August from a year earlier, slower than the 12 per cent growth seen a year ago. To make matters worse, liquidity conditions tightened during the month.

Industrial activity: Industrial production fell 10.4 per cent in July from a year earlier, shallower than June’s revised contraction of 15.8 per cent. Capital goods output — a key indicator of demand in the economy — dropped 22.8 per cent from a year earlier.

Output at infrastructure industries shrank 9.6 per cent in July from a year ago and was slightly better than the 12.9 per cent decline in June. The sector, which makes up 40 per cent of the industrial production index, had contracted by a record 37.9 per cent in April. Both data are published with a one-month lag.

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Published on September 25, 2020
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