Data Focus. Weak consumption in Q1 and high-speed indicators signal speed bumps ahead

Economic activity seems to be slowly normalising after the second wave of the pandemic but first quarter GDP data and recent indicators show that it is still not out of the woods.

While the economy grew by a stellar 20.3 per cent on the back of a low base effect in the quarter ended June 30, 2021, consumption is yet to be back on track and August data indicates at least some hiccups going ahead.

Consumption strain

Private consumption grew by 19.3 per cent in the first quarter of the fiscal on a year on year basis but contracted by 17.4 per cent quarter on quarter, compared to an expansion of 2.3 per cent quarter on quarter in the fourth quarter last fiscal.

Its share in GDP has also declined to 55.1 per cent in the first quarter of this fiscal from 55.4 per cent a year ago. It was as high as 58.3 per cent in the third quarter of last fiscal due to pent up and festive demand after the unlocking of the economy.

Worryingly, government consumption too contracted by 4.8 per cent year on year in the April to June quarter of the fiscal.

Analysts point out that the data indicates strain on personal consumption after the second wave of the pandemic, which impacted households even more.

“The second wave of infections had taken a toll on consumption, as seen in high frequency indicators of auto sales, tractor sales, fuel consumption – all sequentially slipping in months of April and May 2021,” Acuité Ratings and Research said in a note.

Recent indicators reveal that while demand and consumption are now gathering pace after the trough of May, recovery is still uneven.

The goods and services tax mop up in August remained above the ₹1 lakh crore mark at ₹1.12 lakh crore but was lower than the ₹1.16 lakh crore in July.

Manufacturing activity, measured by the Purchasing Managers’ Index expanded for the second straight month in August but was lower at 52.3 compared to July’s reading of 55.3.

Unemployment rate as measured by CMIE rose last month compared to July.

An SBI Ecowrap report noted a nine per cent de-growth in revenue and two per cent growth in employee cost has been reported in the first quarter of the fiscal against the previous quarter.

Possible recovery

However, other indicators show signs of a revival. Auto sales showed positive traction in August on a year on year basis though impacted sequentially by chip shortages. The railways registered its highest freight in terms of loading and earning last month, while digital payments scaled new records. Bankers have also reported robust credit card spends.

While there are signs of normalisation by the third quarter of the fiscal, analysts said a full fledged recovery will depend on the pace of vaccination and a possible third wave.

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