- Gennaio 23, 2022
- Posted by: Oliver
- Categoria: Economics, Finance & accounting
India
Update on the latest developments
The economic recovery momentum in India has been slowing since 3Q21 amid a rising new wave of infection, as well as the lingering impact of the Delta wave in 2021. On the consumption front, auto sales contracted 6.6% m-o-m seasonally adjusted (SA) in November, following a contraction of 6.3% in October amid a decline in two-wheeler sales, which is more representative of rural demand. Meanwhile, passenger vehicle sales increased by 4.6% m-o-m SA after seeing growth of 25% in October.
Industrial production grew by 1.4% y-o-y in November, a slowdown from upwardly revised growth of 4% in October. This was the smallest growth in
industrial output seen since the sector started to recover in March 2021, with production slowing in all sectors. The sharp slowdown in industrial growth took place amid a backdrop of several factors, including the fading impact of a low base of comparison from the corresponding period in 2020. Supply chain disruptions, associated with higher-cost raw materials, also constrained manufacturing activity. Moreover, there were fewer working days in November, due to the Diwali holiday in the first week of the month. On a monthly basis, industrial output dropped by 4.7%, following upwardly revised growth of 5.1% in October.
On the employment front, pressure on the labour market eased as the unemployment rate decreased to 6.9% in September from 8.3% in August. Yet the 3Q21 jobless rate averaged 7.4%, which is on the high end.
The consumer price index (CPI) jumped to 5.6% in December from 4.9% in November, recording the highest rate since July and remaining within the central bank’s 2-6% target range for the sixth- consecutive month. On a monthly basis, consumer prices fell by 0.36% in December, the first decline in 11 months. The Whole Price Index (WPI) inched down to 13.6% in December from 14.2% the previous month. On a monthly basis, wholesale prices fell to 0.35% in December from growth of 1.56% in November.
On the monetary policy front, the Reserve Bank of India (RBI) kept the repo rate at 4% in December, and the reverse repo rate at 3.4%, maintaining an accommodative monetary policy stance to support the economic recovery and help mitigate the negative impacts of COVID-19.
On the external demand outlook, the trade deficit lowered to $21.68 billion in December, compared with a preliminary estimate of $21.99 billion in November and $15.72 billion a year earlier. Imports jumped by 38.55% y-o-y to $59.48 billion, mostly due to an increase in the purchase of silver, sulphur and iron pyrites, fertilizers, crude and manufactured products. Meanwhile, exports surged by 38.91% to an all-time high of $37.81 billion over the April-December period and the trade gap widened to $142.44 billion compared with $61.38 billion over the same period the previous year.
Near-term expectations
The slowdown in industrial and consumption activities might keep India’s economic outlook cautious, especially as the new Omicron variant of COVID-19 may increase uncertainties entering 1Q22. Nevertheless, the postponed recovery may materialize in the coming year.
In the meantime, December’s PMI indices mirrored a cautious outlook, as the manufacturing PMI dropped to 55.5 in December from 57.6 in November. This still suggests robust manufacturing conditions that are elevated by historical standards. Similarly, the services PMI dropped to 55.5 in December from 58.1 in November ‒ the weakest reading since September – amid concerns over another wave of COVID-19. Overall, sentiment in both the services and manufacturing sectors have improved, but remain subdued amid inflationary pressures and potential new waves of COVID-19.
A slowdown in infections and pickup in the vaccination rate are factors that support a further recovery for India that should carry on in 2022. However, India’s economic outlook is still clouded by a high level of uncertainty and potential state-level restrictions. For this MOMR, India’s 2021 and 2022 growth forecasts were kept unchanged at 8.8% and 7.0%, respectively.
Table 3 – 7: India’s economic growth rate and revision, 2021–2022*, %
India
2021 8.8
Change from previous month 0.0
2022 7.0
Change from previous month 0.0
Note: * 2021-2022 = Forecast. – Source: OPEC.