Consumer Confidence Plummets To A Historic Low, RBI Survey Shows
But the respondents were buoyant over hopes of a more optimistic outlook ahead.
Consumer confidence hit a record low in July on account of a bleak economic scenario amid the disruptions caused by the coronavirus pandemic.
The current situation index dropped to 53.8 in July from 63.7 in May, according to the Reserve Bank of India’s forward-looking surveys released on Thursday. The index has remained weak since May last year.
Consumers are pessimistic over the economic situation, employment, price and income compared to the position a year ago, the survey found. Most respondents reported a reduction in discretionary spending, though their overall spending increased during the last one year. They do not expect to increase non-essential spending in the coming year as well, it said.
The respondents, however, remained buoyant over hopes of a more optimistic outlook ahead. The future expectations index for the year ahead rebounded in the survey’s July round, rising to 105.4 from 97.9 in May.
Inflation Expectations
Inflation expectations of households saw an uptick in July, continuing the trend from May when the last survey was conducted.
The current median inflation perception rose 60 basis points to 9.9% in July, according to the RBI survey. The three-month ahead median inflation expectation stood higher than the one-year horizon for the second survey round in a row.
“Households’ three months ahead expectations remained above their one-year ahead expectations, indicating their anticipation of lower inflation over the longer horizon,” Shaktikanta Das, governor at the central bank, said in his assessment on Thursday.
Industrial Sentiments Crashed
The Business Assessment Index fell to an all-time low of 55.3 in the quarter ended June from 102.2 in the preceding three months.
The manufacturing companies assessed were pessimistic on major demand indicators like production, order books, capacity utilisation and employment conditions, the survey said.
The business expectations index, however, contracted to 99.5 for the July-September period. Manufacturers expected production and order book to improve in the ongoing quarter, but sentiments on job landscape and external demand to remain weak. Sentiments on profit margins also remained weak for the ongoing quarter, the survey said.
To be sure, the industrial outlook survey was conducted during the April-June period.
- Aggregate capacity utilisation was showing signs of a turnaround before the pandemic hit. It had increased to 69.9% in the January-March quarter from 68.6% in the October-December period—its historic low.
- The seasonally adjusted capacity utilisation remained stable at 68.3% in the three months ended March, compared with 68.4% in the preceding three months.
Real gross domestic product is likely to contract 5.8% in 2020-21 and rebound to 7.4% in the next fiscal, RBI’s survey of professional forecasters showed. The central bank has so far abstained from giving its own estimates while acknowledging that the GDP will remain in the contraction zone in the first two quarters of the financial year ending March 2021.