Economy News

Economy Gathers Momentum In May On Pent-Up Demand, Indicators Show

India’s economy gathered momentum in May driven by pent up demand for services and higher output from industries as reopening continued from pandemic restrictions.

India’s economy gathered momentum in May driven by pent up demand for services and higher output from industries as reopening continued from pandemic restrictions.

Five of the eight high-frequency indicators compiled by Bloomberg News showed improvement, pushing the needle on a dial measuring so-called ‘Animal Spirits’ to 6, from 5, for the first time since July and the first upward move in more than a year. The gauge is based on the three-month weighted average scores to smoothen out volatility in the single-month readings.

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The upturn was fueled by an expansion in services activity and a robust growth in core infrastructure industries. However, an unprecedented rise in input prices, due in part to Russia’s invasion of Ukraine and persistent demand-supply imbalances, may spoil sentiment going forward. 

Higher food, fuel, labor and transportation costs are forcing central banks globally to prioritize price stability over growth. The Reserve Bank of India has raised borrowing costs by 90 basis points so far this year and vows to do more to bring price gains below its target ceiling of 6%. 

Erratic weather and an uptick in virus cases risks also impeding the recovery. The number of daily virus cases increased about sixfold in the last one month.

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Below are details of the dashboard. (For an alternative gauge of growth trends, follow Bloomberg Economics’ monthly GDP tracker — a weighted index of 11 indicators.)

Business Activity

Purchasing managers’ surveys showed activity in India’s dominant services sector in May rose to the highest level in eleven years, while momentum in the manufacturing sector remained steady. That helped pull the S&P Global India Composite PMI to the 10th consecutive month of expansion.

Inflation expectations, though, continued to weigh on business confidence as input costs climbed to a new record, the survey showed. Companies will continue to transfer mounting costs to consumers going ahead, which could keep inflation elevated.

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Exports

India’s trade deficit widened to an all-time high of $24.33 billion in May due to higher gold and petroleum imports. Official data showed that surging commodity prices kept merchandise imports above $60 billion for the third month in a row, while exports growth slowed due to geopolitical uncertainties.

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Consumer Activity

India’s automobile sector saw another month of decline in May, but the extent of fall was smaller as some segments such as car and two-wheeler sales showed a pick-up from a month ago.   

In other signs of consumer activity, bank credit grew 12.1% at the end of May, from 11.1% in April. Liquidity conditions also remained in surplus.

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Industrial Activity

Two other key indicators of industrial activity, which are published with a one-month lag, showed robust growth in April. Factory output growth rose to a eight-month high of 7.1% from a year ago, led by a double-digit increase in electricity production, while manufacturing and mining also expanded at a healthy pace. A similar trend was seen in the output growth of eight infrastructure industries, which increased to 8.4% from 4.9% in March.

Source:ndtv.com

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