Indicators show that the economy picked up steam in May thanks to pent-up demand.

  • June 27, 2022, 1:13 p.m.

India's economy gathered momentum in May, driven by pent up demand for services and higher output from industries as reopening continued from pandemic restrictions.

Five of the eight high-frequency indicators compiled by Bloomberg News showed improvement, pushing the needle on a dial measuring so-called "Animal Spirits" to six, from five, for the first time since July and the first upward move in more than a year. The gauge is based on the three-month weighted average scores to smooth out volatility in the single-month readings.

The upturn was fueled by an expansion in services activity and robust growth in core infrastructure industries. However, an unprecedented rise in input prices, due in part to Russia's invasion of Ukraine and persistent demand-supply imbalances, may spoil sentiment going forward. 

Higher food, fuel, labor, and transportation costs are forcing central banks globally to prioritize price stability over growth. The Reserve Bank of India has raised borrowing costs by 90 basis points so far this year and vows to do more to bring price gains below its target ceiling of 6%. 

Erratic weather and an uptick in virus cases risk impeding the recovery also. The number of daily virus cases increased about sixfold in the last month.

Below are details of the dashboard. (For an alternative gauge of growth trends, follow Bloomberg Economics' monthly GDP tracker—a weighted index of 11 indicators.)

Business Activity

Purchasing managers' surveys showed activity in India's dominant services sector in May rose to the highest level in eleven years, while momentum in the manufacturing sector remained steady. That helped pull the S & P Global India Composite PMI to its 10th consecutive month of expansion.

The survey showed that inflation expectations continued to weigh on business confidence as input costs climbed to a new record, though. Going ahead, companies will continue to transfer mounting costs to consumers, which could keep inflation elevated.

Exports

India's trade deficit widened to an all-time high of $24.33 billion in May due to higher gold and petroleum imports. Official data showed that surging commodity prices kept merchandise imports above $60 billion for the third month in a row, while exports growth slowed due to geopolitical uncertainties.

Consumer Activity

India's automobile sector saw another month of decline in May, but the extent of the fall was smaller as some segments, such as car and two-wheeler sales, showed a pick-up from a month ago.

In other signs of consumer activity, bank credit grew 12.1% at the end of May, up from 11.1% in April. Liquidity conditions also remained surplus.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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