September marks a deterioration of the economic recovery

The deterioration was driven by the consumer segment, even though the comfort of life segment remained worrying. In August, the tracker reported its best performance in five months, with only seven indicators in red.

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 had 12 indicators in the red during the lockdown months of April 2020 and May 2021.

In an Oct. 21 report, rating agency ICRA noted that India’s recovery continued through the September quarter as the second wave of covid-19 subsided, but became ” at several speeds ”. More sectors have improved their performance, but with considerable variation. in the rhythm, the agency said.

However, the Reserve Bank of India (RBI) and the International Monetary Fund have kept the country’s growth outlook for 2021-2022 this month, suggesting that September’s poor performance may be just an aberration and that the The economy could continue to recover.

The coming months could see an increase in consumption due to festivals and backlogs in payment of dearness allowances for civil servants, Nomura analysts said in an Oct.8 report. “Rains resumed in September, resulting in normal monsoons this year, which should be positive for the rural economy,” the report said. This should appear in future editions of the tracker as more high-frequency data for October becomes available. .

Supply crisis

All four indicators of the consumer economy fell into the red for the first time since June 2020. Sales of passenger vehicles and tractors slowed to their worst year-on-year pace in four months, a global shortage of semi- drivers who forced automakers to cut production despite the festival’s prospects. demand.

Data from the Federation of Automobile Dealers Associations (FADA) shows vehicle registrations fell 5.3% year-over-year, but the drop was much sharper of 7% (annualized) per year. report as of September 2019. Until August, pent-up demand, cheaper credit, and massive tax support to the agricultural sector had made car and tractor sales key drivers of the economic recovery, especially after the second wave .

The tracker considers growth over the past two years – on an annualized basis – to compare current activity levels with the pre-pandemic period, as year-over-year comparisons can be misleading due to base effects.

Domestic air travel continued its gradual rise, increasing 5.5% since August, but remained well below pre-pandemic levels. Revenge travel and increased public mobility could help the recovery in the months to come.

The producer economy segment performed better, with widespread improvement in purchasing manager indices for the manufacturing and service sectors. Demand-driven growth with mitigating pandemic risks has improved business confidence and market conditions despite rising input costs.

Non-food loans from banks improved slightly in August, but remained in the red for a year. Data for this indicator are available within one month.

Stress points

As in recent months, the external sector continued to be the tracker’s main saving grace, albeit with some deterioration. A sharp 84% increase in year-over-year imports widened the trade deficit to an all-time high, tipping the trade balance into the red.

A report from Nomura suggested the high imports were due to abnormal volumes, but the trend may still continue, driven by high oil and commodity prices, among other factors.

Better performance in engineering goods and petroleum products supported exports, but labor-intensive sectors slowed due to weak global demand.

The four indicators of the comfort of life segment were in red. Retail price inflation has slowed significantly, but mainly due to a base effect. Compared to a two-year period, inflation has remained just below the 6% cap. Energy and oil prices are already having a ripple effect on the production and prices of other commodities, and inflationary pressures will become more apparent as the higher base wanes.

Such lingering price pressures, combined with the risks of a GDP hit by global supply disruptions, could once again put the RBI in a difficult position as it has already shown signs of transitioning to a normalization pathway. monetary policy.

The labor force participation rate, as measured by the Center for Monitoring Indian Economy, is approaching pre-pandemic levels, but remains in the red. The decline in real rural wages that had persisted for a year showed signs of improvement. The comfort of life segment – purchasing power and real wages – must improve for the economy to support its recovery.

The boost to the economy has so far come from the vaccination campaign, which has been successful in tackling the supply shortage seen in previous months. However, India will not be immune to the sagging path of the global recovery, as the tracker showed in September. The ability to avoid a third wave at the next festivals will be essential to find the path to a sustainable recovery.