Covid-19: Shape Of India’s Economic Recovery Goes From V To W-ish
It’s not quite a ‘W’ yet. But it’s also not looking like a straight ‘V’ anymore.
A rebound in economic activity after the lifting of nationwide restrictions has been followed by a flattening of the recovery curve. Concurrent indicators ranging from mobility to electricity consumption have shown moderation in the last two weeks as the nationwide lockdown have been replaced by more localised restictions.
Now ranked third globally in terms of number of positive Covid-19 cases, India has seen states re-impose restrictions. On Tuesday, Bihar extended a lockdown until the end of July, joining parts of Assam, Jammu & Kashmir, Jharkhand, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal.
“As deaths and cases spread, activity indicators show a dip in July vs June end, indicating that the economy may be stagnating at a lower level than earlier anticipated,” said Neelkanth Mishra, India equity strategist at Credit Suisse. While these stagnating indicators have an urban bias, we worry that as deaths and cases spread geographically, enforced or voluntary activity restrictions could undo the “rural pickup”, Mishra said.
The Google Mobility Tracker, which looks at movement across different categories, shows that workplace visits were 33% below the pre-Covid baseline in the May 29-July 10 period. In the May 16-June 27 period, workplace mobility was 29% below the baseline.
However, visits to supermarkets and pharmacies returned to base levels, while mobility within residential areas improved marginally above the baseline.
Electricity demand met during evening peak hours showed signs of easing after demand rose to nearly close the gap over the previous year.
Average electricity demand dropped by 5.27% in the week ended July 12, 2020, compared to a contraction of 3.83% in the week ended July 5, 2020, according to daily reports published by the Power System Operation Corp.
E-way bills data for July so far shows a 32% decline compared to the same month last year, according to Credit Suisse. In June, E-way bills were 13% below the previous year.
Mishra, however, said this could be because of late-month bunching up of e-way bills.
Nomura India Business Resumption Index
A proprietary index created by Nomura to track the resumption of economic activity, which includes some of the indicators mentioned above, has also shown a decline for two consecutive weeks now. This may continue to be the case for the rest of July and August.
With tighter policies returning, we see a rising risk that the incremental improvement in activity may fade from August, after the initial post-lockdown normalisation, said Nomura.
Unemployment And Labour Force Participation
Not all indicators are flattening.
The unemployment rate moderated to 7.44% for the week ending July 12, 2020, from 8.87% on July 5 and 8.59% at the end of June, according to data from the Centre for Monitoring the Indian Economy.
Mahesh Vyas, managing director at CMIE, said that while the third week shows less fatigue, there still seems to be some resistance to further improvement. Also, the drop in unemployment rate is accompanied with a drop in the labour participation rate. In the last week of June and the first week of July, the labour participation rate fell and the unemployment rate rose, he said in an article on the company’s website. The week ended July 12, he said, was the third consecutive week to record a fall in the participation rate.