Recovery engines move smoothly

Eight of the 16 high-frequency indicators included in the tracker were in the green, or above their five-year average trend, in August. It’s the best read not only since the start of the pandemic, but for almost two and a half years.

But there is still some way to go. In August, eight indicators were also in the red, or below their five-year average trend. Four of them concerned the comfort of life segment, which directly affects the Common Indian: inflation, despite the cooling, greatly exceeds the target rate, real wages are falling and the employment situation is worrying. .

Launched in October 2018, Mint’s Macro Tracking provides a comprehensive report on the state of the economy based on trends in 16 high-frequency indicators in four segments: consumer economy, production economy, foreign sector, and comfort of living. . At worst, the tracker only had three indicators in the green during the lockdown month of April 2020 and four in May 2021.

The rapid recovery results from better adaptability to the pandemic, a high prevalence of antibodies against the SARS-nCoV-2 virus and a rapid increase in the vaccination campaign. Easy financial conditions should also support the continued recovery in domestic demand, analysts at Nomura said in a September 1 research note.

So far, the recovery has continued in September, but with reduced intensity. Nomura’s business resumption index, a set of indicators such as mobility, electricity demand and electronic goods and services tax bills of lading, fell slightly, although it remains above levels before Covid. A clearer picture will not appear until next month, when more data for September becomes available.

Green signals

The consumer economy segment remained afloat, marking a second consecutive month with two indicators in green. Tractor sales, a barometer of rural demand, led the way, rising 20% ​​on an annualized basis over the two-year period for the third month in a row and setting the stage for an optimistic festival season.

The tracker considers annualized growth over the past two years to compare current activity levels with the pre-pandemic period, to avoid base effect distortions in year-to-year comparisons.

Passenger vehicle shipments to showrooms were only green for the third time during the pandemic. However, vehicle registrations, which are more closely tied to retail sales, are not yet recovering, down 7.6%.

Air transport is accelerating. Domestic airlines carried 6.7 million passengers in August, a monthly jump of 37% and the highest since March. The deficit narrowed to 25% on an annualized basis over the period two years ago.

The Purchasing Managers Index (PMI), a widely tracked indicator of business activity, posted its first expansion since April. Services PMI hit an 18-month high, marking a critical step in reviving businesses affected by the pandemic. Business confidence rebounded with increased consumer traffic. However, export orders were subdued and input costs remained a pain point for companies.

Risks to come

The outdoor segment was all green for the first time in five years. Business momentum remained above pre-Covid levels, although the growth rate moderated slightly as oil prices fell below $ 70 a barrel in August. Supply bottlenecks and declining global demand amid outbreaks in Delta have been felt, with exports falling 6% since July.

Exports in labor-intensive sectors rose for a second consecutive month, although more slowly than in July, indicating that labor market tensions could improve. The rupee had a stable month due to foreign capital inflows, but uncertainty over the US Federal Reserve’s policy actions could keep currency markets tight for some time now.

Retail price inflation, an indicator of the comfort of living segment, slowed significantly but still stood at 6% compared to a two-year period. The widespread decline has allayed fears of upward pressure on prices for the time being. But as the base effect begins to wear off, it could see a rebound. Fuel prices are still on the rise. The Reserve Bank of India (RBI) rate setting committee is expected to maintain its accommodative stance until demand strengthens enough to replace supply issues as the main driver of inflation, Aditi said Nayar, Chief Economist at ICRA. The panel meets next week.

Meanwhile, rural wages fell 1.1% in real terms over the two-year period, raising fears that income and consumption will remain under pressure for some time. The labor force participation rate, as measured in a survey by the Center for Monitoring Indian Economy, edged up to 40.5%.

Next week’s RBI meeting will shed new light on the views of policymakers on resuming growth. August has been a month of hope, but as festivals take over, the recovery could move both ways with increased mobility. It will be crucial to avoid a third wave even if an increase in demand is looming.

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About Frances R. Smith

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