As The Second Wave Ebbs, Indian Economy Turns A Corner
High-frequency economic indicators are showing early signs of a rebound as the second wave of Covid-19 cases ebbs. The turn, if it strengthens, will mean that the months of April-May were worst hit, with the economy set to rebound from June.
Fresh cases fell below 90,000 for the first time in over two months on Tuesday. With cases receding, several states with high contribution to national output, such as Maharashtra, Gujarat, Tamil Nadu and Delhi, are reopening.
The Nomura India Business Resumption Index, a weekly tracker of the pace of economic activity normalisation, bottomed-out in end-May and has since registered two consecutive weeks of increase.
For the week ended June 6, it rose to 69.7 from 62.9 in the previous week, and 60.2 at its nadir, said a research note by Nomura dated June 7. This indicates that over the last couple of weeks, the NIBRI has risen by about 9.5 percentage points from the bottom, and is currently about 30 percentage points below pre-pandemic levels, it said.
QuantEco Research’s Daily Activity and Recovery Tracker Index also rose by 12.4% on a weekly basis for the week ended June 6, compared to a revised expansion of 5.6% the previous week — indicating a third consecutive week of improvement in economic activity.
Recovery, expectedly, is led by mobility, while other high-frequency indicators are picking up more gradually. Google workplace and retail and recreation mobility are up by over 8 percentage points from the previous week’s levels, said Nomura. Traffic congestion has also started picking up and railway passenger daily revenues have risen to Rs 460 crore from a low of Rs 160 crore in mid-May, it said.
GST e-way bills clocked the first week-on-week uptick in nearly two months, according to QuantEco Research. Power demand picked up by 7.6% on a weekly basis after rising by over 5% in the previous week, reversing several weeks of contraction, according to Nomura.
The pace of recovery, however, remains uneven.
Railway freight revenues are picking up more gradually, rising to nearly Rs 2,700 crore per day from about Rs 2,600 crore a fortnight ago, according to Nomura.
While the labour participation rate has remained stable at around 39%, unemployment rate rose to 13.6% for the week ended June 6 from 12.2% in the previous week. Notably, the rise is led by a higher unemployment rate in rural India, while urban India recorded a decline from the previous week.
Better But By How Much?
Activity is rebounding as fast as it fell, said Neelkanth Mishra, India equity strategist at Credit Suisse, in a note dated June 7.
A mobility-based now-cast of the GDP is 14% below FY20, compared to a contraction of 21% at the trough a fortnight ago. If this continues, GDP run-rate could be back to FY20 levels by mid-July, Mishra wrote.
GDP can be back to FY20 levels by end-June or mid-July, and Q1FY22 GDP would be 8% below FY20 vs -10.4% estimated by MPC. FY22 could also be 200-basis-point better than current consensus forecast.Neelkanth Mishra, India Equity Strategist, Credit Suisse
“Given the steep volatility in activity driven by lockdowns, the relatively lower lasting impact of the income loss, and the 6-6.5% growth momentum in the years before the pandemic, we believe forecasting the GDP level vs the pre-pandemic path may have fewer errors than the YoY growth approach used by be other forecasters,” Mishra explained.
Others are more cautious.
“The pace of easing must be cautious and guarded to avoid any regressions,” according to the note by QuantEco Research.
“...even as the worst might be over, growth will likely rise only gradually in June,” said Nomura, which expects a contraction of 3.8% in the April-June 2021 quarter on a sequential basis, lower than currently feared by consensus.
Near-term growth dynamics, however, remain crucially contingent on two factors — the pace of relaxation of lockdowns and the pace of vaccinations, Nomura said. While the former will determine the speed of recovery in mobility and broader economic activity, the latter will be important for ensuring that the number of cases remains in check and the lockdown easing is sustained, it said.