India’s economic engine losing steam, most activity indicators show weak sequential performance

High-frequency indicators for the month of July suggest that India’s economic activity is losing steam, with most showing a decline on-month basis.

India’s economic engine losing steam, most activity indicators show weak sequential performance
nflation, however, showed positive data as WPI inflation moderated to 13.9% On-year in July from 15.2% on-year in June.

High-frequency indicators for the month of July suggest that India’s economic activity is losing steam, with most showing a decline on-month basis, Bank of America (BofA) said. “High-frequency indicators faltered in July vs June. For most activity indicators sequential performance was below median,” the report said. Economists at BofA have also highlighted that the covid-19 cases in the country have been hovering at 15,000 levels while daily deaths are below 50. On-year growth continued to do well in July, but sequential growth for most indicators fell short of the median month-on-month typical of July.

Losing momentum: Traffic slows

Both port cargo and aviation cargo traffic slowed in the month of July compared to June. The moderation was more pronounced than the usual m-o-m decline in July. Railway passenger traffic improved but continued to be below pre-covid levels. Further, it was noted that PMI manufacturing expanded at a faster pace in July, but PMI services expanded at a slower pace. “Petrol and diesel demand fell sharply, the same was true for power generation and tractor sales. In the case of automobile sales, while both passenger vehicle (PV) and two-wheeler sales rose in July vs June, the pace of expansion was less encouraging for PVs,” BofA said.

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Data also showed that two-wheeler sales are still below pre-covid levels. In terms of rural demand, although monsoon rains to date are 10% above normal, economists at BofA noted that the area sown under kharif crop is still down compared to last year, potentially due to skewed spatial distribution. Inflation, however, showed positive data as WPI inflation moderated to 13.9% On-year in July from 15.2% on-year in June.

Trade deficit widens

In the month of July, the trade deficit widened further to $30 billion in July from $26.1 billion in June as exports moderated. “Within exports, a $2 billion decline in oil exports was the biggest driver. Imports, on the other hand, were unchanged. While it remains to be seen whether this trade deficit increase is a price led or volume led, we expect lower global oil and commodity prices to start showing in upcoming trade data prints,” BofA said. Economists, however, warned that the trade deficit widening further in July poses upside risks to their FY23 current account deficit forecast of 3% of GDP.

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Meanwhile, between April and June, the centre’s fiscal deficit had used up 21.2% of the full-year budgeted number as against a median of 39%, thus performing much better. “This is on account of higher than usual revenue receipts, with tax revenue playing an important role, even as expenditure run-rate was higher than median run rate,” BofA said. 

Covid rising but manageable

Data showed that the daily new Covid-19 cases continue to hover at 15,000 levels and daily deaths are below 50. “Barring some states, where we have seen a recent spike, overall Covid situation is largely under control. Fewer tests is a matter of concern though and is in part also responsible for the rising total positivity rate,” the report said. Vaccination in July and August so far too has shown modest improvement but with only 68.5% fully vaccinated is a cause for concern.

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