Why did the domestic recovery slow down in November?
India’s economic recovery appears to have remained slow in November, still plagued by some of the factors that tarnished the picture in October. Global supply disruptions have made their presence felt again, as nine of 16 high-frequency indicators considered in Mint’s monthly macro monitoring fell in the red, or below their five-year average trend . With the Omicron variant of covid-19 now weighing on growth prospects, the recovery trajectory still seems uncertain at the end of the year.
The tracker’s performance in November was only a notch better than in September and October, when 10 indicators were in the red, the worst reading since May 2021. The slowdown was largely due to weak auto sales amid a global shortage of semiconductor chips. In a Dec. 1 report, economists at foreign brokerage firm Nomura said some of these factors are easing, but “only to a margin.” said the report.
On some metrics, the rise has stayed on course in December so far, with Nomura’s Business Recovery Index hitting new highs every week. This is mainly due to the increase in mobility and the resurgence of a rapidly recovering service sector. But the increase in Omicron cases and restrictions imposed over the past week in several cities could once again disrupt contact-intensive industries such as travel and hospitality. A clearer picture of the recovery in December will emerge next month, when more data becomes available.
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, external sector and comfort of living. . The tracker saw its worst during the lockdown months of April 2020 (with 13 indicators in red) and May 2021 (12 in red).
After two months of staying entirely in the red, the tracker’s consumer economy segment improved slightly in November, with tractor sales increasing 8.2% (annualized) compared to the same period ago. two years. But although in line with the five-year trend, the sales figures are lower than the previous month. For the third month in a row, the automotive sector performed poorly, leading to an annualized decline of 19.1% in passenger car sales compared to the same month of 2019.
Domestic air traffic gained ground, with 10.5 million passengers flying in the month, the highest number since the start of the pandemic. The deficit with pre-pandemic levels was also at its lowest since March 2020. But the Omicron spread is likely to have cut the wings of travelers in December, the first data available from analysts shows.
The productive economy segment did better, with three of the four indicators in the green. This was led by an almost ten-year high figure for the Purchasing Managers’ Composite Index, a key measure of business sentiment. The robust numbers reflect strong festive demand as well as a rapid expansion in business. Growth in rail freight, the main contributor to rail revenues, slowed in November, but the pace was well above its five-year trend. Non-food bank credit was the only indicator in the red, but data on this is available one month later.
The external sector is grappling with a growing trade deficit, which hit a new high of $ 22.9 billion, surpassing the September high. This is due to weak exports as well as the continued impact of high energy prices, and it does not bode well for India’s current account deficit if it persists, analysts say. .
Exports of labor-intensive sectors such as tobacco, gemstones and jewelry and leather registered their first decline in five months, although they remained above the five-year trend . The performance of the national currency against the dollar has improved and outperformed its key emerging market counterparts.
For the eighth month in a row, the comfort of life segment was completely red, the longest such streak since the tracker captured high-frequency indicators. This shows that although businesses are slowly getting back on their feet, the pandemic has taken a serious and lasting blow to household finances.
Fuel excise tax cuts failed to keep year-over-year retail price inflation from peaking in three months, as food prices gradually increased . But compared to two years ago, inflation has eased slightly given the base effect. As this effect fades from December, inflation will only increase further.
Core inflation, which excludes food and fuel, edged up and was described as a policy challenge by monetary policy makers at the Reserve Bank of India earlier this month. Retail prices could indeed become a headache for the central bank as the risks to growth refuse to ease.
Meanwhile, the labor force participation rate, as measured in a survey by the Center for Monitoring Indian Economy, edged down to 40.2%, but remained below the five-year average.
Although the covid-19 vaccination campaign is progressing steadily, the spread of Omicron adds new uncertainty to the economic recovery. In the absence of rapid fiscal support, the recovery continues to depend heavily on a rapid reaction of monetary policy. All eyes will be on the speech surrounding next year’s budget in the weeks to come.
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