Covid-19: Is The Rebound In Economic Activity Strengthening Or Flattening?
Economic activity, which came to a near standstill in April, saw a rebound in May as restrictions on movement started to list. The pick-up, however, has turned patchy in June as some indicators continue to show improvement while others have flattened out.
India went into a nationwide lockdown on March 24 to curb the spread of the Covid-19 virus. After a complete lockdown in April, restrictions were slowly eased in May and June in phases.
“Early June data for our dozen super-high-frequency indicators shows a slowing pace of improvement with certain indicators nearing 80% of pre-Covid level. Four of the 12 have flattened over the last week,” said Mahesh Nandurkar, equity analyst at Jefferies, in a note dated June 14.
A similar pattern was highlighted by Neelkanth Mishra, India strategist at Credit Suisse, in a note on Monday. Activity indicators continue to show improvement, but are patchy, he wrote in his June 15 note.
Indicators That Have Flattened Out
Data for e-way bill generation, retail electronic transactions, custom duties and advertising spots are showing signs of flattening, Jefferies said in its report.
E-way bill generation was at 75% across two readings in June when compared to pre-Covid levels in February. Retail electronic transactions were at 76% in the previous and current readings, while custom collections and ad-spot levels also flattened out in the most recent readings after a pick-up in May.
Early June data shows a slowing pace of improvement with certain indicators nearing 80% of pre-Covid-19 level, wrote Nandurkar. The indicators were flattish or marginally weaker week-on-week, but remain much better than May, they said.
Truck freight rentals saw a deeper de-growth for Delhi-Kolkata and Delhi-Chennai routes in the second week of June, though it picked up across other major routes, according to a research report by JM Financial. In addition, the surge of packages delivered by Delhivery since end of May have also flattened out, though it remains higher than in April and May, the brokerage said.
Growth in mandi (market) arrivals, excluding the National Capital Territory, also slipped into negative territory in the second week of June, JM Financial said. Arrivals remained 20% below the previous year’s levels.
Other Indicators Continue To Pick-Up
Other indicators continued to pick-up.
Key among them is the average electricity demand, which was 11% lower than a year ago in the week ended June 14. In the previous week, electricity demand was running 18.2% below last year, according to daily reports published by the Power System Operation Corporation Ltd.
Monsoon season rainfall has continued to trend above normal, impacting electricity consumption, Jefferies said.
Unemployment saw a sharp fall to 11.6% in the week ended June 14, after it dropped to 17.5% in the week ended June 7, according to the Centre for Monitoring the Indian Economy.
It had peaked at 23% nationwide and at 30% in urban areas in April.
Credit Suisse pointed to other indicators that showed strength.
“Vahan data shows auto registrations down 80% in May, and down 55-60% in June. Google mobility data suggests grocery activities are now back to normal except in Maharashtra, Gujarat, Delhi and West Bengal,” Mishra said. He said workplace activity is now about 10% below normal.
JM Financial noted that refinery utilisation levels are now about 5% higher on a monthly basis in June, according to Indian Oil Corporation Ltd., implying that diesel and petrol consumption is back to 80-85% of normal. Toll collections at highways also continue to improve and back up to about 80% of the February level, the report said.
Pranjul Bhandari, chief India economist at HSBC, said more broadly economic activity will see an uptick through June and July. “Thereafter, the momentum could become sluggish again as the labour and financial disruption through the pandemic become binding constraints,” she said in a note dated June 13. “However, selective high frequency indicators in June are already showing signs of flattening or rising at a slower pace despite remaining well below pre-covid 19 levels.”