Concern about the depth of India’s recession is slowly being replaced by optimism that a recovery is taking hold.
A number of indicators, from auto sales to service sector activity, rose last month, while alternative data points to strong demand in an economy driven primarily by domestic consumption.
Data to be released on Friday will likely show that gross domestic product declined 8.2% in the three months through September, according to economists surveyed by Bloomberg. While that pushes Asia’s third-largest economy into its first technical recession in records dating back to 1996, it is a strong recovery from the record 24% contraction of the previous quarter.
The improvements are expected to continue, with some analysts seeing that the country will grow again as soon as this quarter. The recovery from the lockdown has been stronger than expected, Reserve Bank of India Governor Shaktikanta Das said on Thursday, signaling ahead of next week’s rate decision that policy makers will remain supportive.
“While the agriculture sector remained the bright spot, supported by a good monsoon season and subsidized inputs, we believe that the recovery has likely spread across the economy and is about to take hold,” Rahul Bajoria, India’s chief economist in Mumbai at Barclays Plc, wrote in a report to clients.
That improvement coincides with a drop in daily virus cases in India, which have halved from their peak of more than 97,000 infections a day in mid-September.
“With the increase in cases elsewhere, India has fallen to the top in terms of faster growing cases and deaths,” said Bajoria, who sees positive growth this quarter and a year-round contraction of 6.4%, plus slight than the RBI forecast a 9.5% decline.
The RBI has been doing the heavy lifting to provide stimulus to the economy, cutting interest rates 115 basis points so far this year, infusing liquidity, and passing billions of rupees in dividends to the government. But their support has been hampered by inflation that rose well above the central bank’s 2% -6% target band.
For its part, the government extended the fiscal stimulus to 15% of the economy, with most of the measures related to credit guarantee programs.
What Bloomberg Economics Says …
“We expect the recovery to moderate, as inadequate fiscal stimulus, delayed monetary easing and new export headwinds offset the strength of the rural economy and a push for further relaxation of the blockade.”
– Abhishek Gupta, Economist from India
For the full report, click here
There is continuous improvement, according to the State Bank of India economist Soumya Kanti Ghosh. The third quarter figures could be even better, in line with trends seen in economies globally, he said.
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