India’s economy showed signs of stabilization in August and manufacturing and services gradually improved even as coronavirus cases spiked across the country.
Five of the eight high-frequency indicators compiled by Bloomberg News gained last month, while two were unchanged and one deteriorated. That kept the needle on a dial that measures so-called animal spirits at 4, a level reached by using the three-month weighted average to smooth out volatility in single-month readings.
However, a strong rebound is still a long way off, as an increase in virus cases continues to disrupt activity and has prompted many economists to lower their growth forecasts for the year.
Business activity
Activity in India’s dominant services sector continued to rally, with the leading index rising to 41.8 in August from 34.2 in July. While that’s a notable improvement from the April record low of 5.4, a number below 50 suggests that it is still in contraction territory.
Manufacturing rebounded in expansion after four consecutive months of contraction, with the Purchasing Managers Index rising to 52 from 46 in July. That helped push the August composite index to 46 from 37.2 a month earlier.
Exports
Exports suffered due to tepid global demand, with shipments falling 12.7% in August compared to the previous year. Agricultural exports and shipments of medicines and pharmaceuticals opposed the trend, growing by 22% and 17%, respectively. On the import side, demand for gold was strong prior to the festival season, resulting in a widening trade deficit.
Consumer activity
Auto sales, a key indicator of consumer demand, rose 14.1% in August from a year earlier, although growth started from a weak base last year. Retail sales also showed signs of recovery, even though the number of consumers who ventured out to buy products was still 70% below the level of the previous year, according to ShopperTrak.
Those increases did not translate into higher demand for loans. Central bank data showed that credit grew 5.5% in August from a year earlier, slower than the 12% growth seen a year ago. To make matters worse, liquidity conditions tightened during the month.
Industrial activity
Industrial production fell 10.4% in July from a year earlier, less than June’s revised contraction of 15.8%. The production of capital goods, a key indicator of demand in the economy, fell 22.8% from the previous year.
Production in infrastructure industries contracted 9.6% in July from a year earlier and was slightly better than the 12.9% drop in June. The sector, which accounts for 40% of the industrial production index, had contracted a record 37.9% in April. Both data are published with a delay of one month.
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