Macro surveys indicate a hit in consumer and business confidence, but the worst may be over

Surabhi Mumbai | Updated on June 02, 2021

The economy is battling the second wave of Covid-19 pandemic

It seems to be a rocky road to recovery for the economy, which is still battling the second wave of Covid 19 pandemic.

While the daily caseload has fallen from the peak of over 4 lakh cases, infections continue to be widespread across the country and cautious States are unlikely to ease the lockdown restrictions at one go, as is already evident.

Macro surveys on business and consumer confidence indicate that the severity of the second wave has marred consumer and business sentiment. But the Nomura India Business Resumption Index strikes a positive note, indicating that the worst could be behind us.

Consumer confidence hit

While fourth quarter GDP data pointed to some traction in economy with a 1.6 per cent growth, private consumption remained tepid in that quarter with government consumption doing most of the heavy lifting. For 2020-21, private final consumption contracted 6 per cent compared to 9.7 per cent growth in 2019-20.

According to SBI Ecowrap, the decline in private final consumption expenditure (PFCE) in FY21 was clearly visible in both current and constant prices. For FY21 as a whole the PFCE growth dropped by 3.7% bps in the current prices. In the quarterly movements, the PFCE registered a gain in Q4 in terms of share in GDP, indicating that there was positive impact on consumption as lockdown eased. However, the second wave has again put the breaks on consumption. The Consumer Confidence Index of the Reserve Bank of India was down at 53.1 per cent in March as against 55.1 per cent in January 2021. “Consumer confidence for the current period weakened in March 2021… on the back of deteriorating sentiments on general economic situation, income and prices,” the RBI said.

Low business confidence

Businesses, especially manufacturers, already grappling from weak consumer demand, seem to be quite concerned about the second wave. The IHS Purchasing Managers’ Index for the manufacturing sector slipped to 50.8 in May from 55.5 in April. “Concerns surrounding the pandemic restricted business confidence towards the year-ahead outlook for production,” it noted.

Similarly, the Overall Business Confidence Index of industry chamber FICCI nosedived and stood at 51.5 in the current round after reporting a decadal high value of 74.2 in the previous survey round.

“With household income being severely impacted and past savings already drawn down during the first wave of infections, demand conditions are expected to remain weak for longer this time around,” it said.

Ray of hope?

The only ray of hope is the Nomura India Business Resumption Index (NIBRI), which registered its first uptick, picking up to 63.6 for the week ending 30 May from a low of 60.3 in the previous week.

“If the NIBRI continues to exhibit a nadir over coming weeks, it will support our view that the worst hit to activity is limited to May, and a sequential improvement will follow in June,” it said, adding that as States slowly embark on a calibrated easing of restrictions , mobility should improve, and real activity data should gradually follow.

Published on June 02, 2021

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