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High frequency data shows the economy turned a corner in June

Mobility indicators and daily railway passenger revenues have all shown strong revival in June
Mobility indicators and daily railway passenger revenues have all shown strong revival in June

Summary

The week ended 13 June was at least the third consecutive week in which economic activity sequentially gained momentum, according to three data trackers by research agencies using a range of data available on daily or weekly basis

The Indian economy began regaining momentum in June, ultra-high frequency data indicated, though subdued consumer sentiment is expected to limit the pace of recovery in Asia’s third largest economy. This comes as states gradually ease curbs on business activity, keeping in mind the decline in the number of fresh covid cases.

The week ended 13 June was at least the third consecutive week in which economic activity sequentially gained momentum, according to three data trackers by research agencies using a range of data available on daily or weekly basis.

The UBS-India Activity Indicator moved higher for the third consecutive week ended 13 June, after hitting a trough in the week ended 23 May. This is corroborated by the QuantEco Research’s Daily Activity and Recovery Tracker (DART) index, which indicates a fourth consecutive weekly expansion in economic activity for the week ended 13 June. The Nomura India Business Resumption Index also jumped in the same week, rising for the third consecutive week led by a strong revival in mobility indicators and higher power demand, after slipping to its lowest in almost a year in the week ended 23 May.

Bouncing back
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Bouncing back

Mobility indicators such as Google mobility indices, the Apple Driving Index, and daily railway passenger revenues have all shown strong revival in June. E-way bills and imports for the first fortnight of June also showed strong growth, highlighting the gradual resumption of economic activity. Power demand continued to recover for the week ended 13 June and the unemployment rate dropped to a six-week low of 8.7% in the same week.

“We expect a sequential pickup in economic activity from June. Unlike the V-shaped recovery in 2020, we expect India to have only a gradual recovery this time, as consumer sentiment remains weak on pandemic-related uncertainty. That said, we expect the economic recovery to gain momentum from 2H FY22 as consumer and business confidence improve, along with the vaccination ramp-up and control of the pandemic," said Tanvee Gupta Jain, an economist at UBS.

Power demand continued to recover for the week to 13 June.
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Power demand continued to recover for the week to 13 June.

With daily cases at 62,224 and the weekly positivity rate below 5%, most states have opened up more economic activities to protect livelihood. The first set of renewed mobility curbs were announced on 24 March by Maharashtra and with the explosive growth of cases under the second wave of the pandemic, most states imposed lockdowns in April and May. This stalled economic revival with most high frequency indicators dipping sequentially.

Subsequent DART readings should continue to trend higher, said Yuvika Singhal, economist at QuantEco Research, amid calibrated easing of restrictions in several states. “In an overarching view, we assess that states are undertaking a rather swift opening up of economic activities compared to 2020. As such, averting a third wave will critically hinge on maintaining covid-responsible behaviour and swifter pace of vaccinations. In the interim, keeping the guard up and regressing into restrictions will be a real threat for Q2 FY22," she said.

The inflection seen in ultra-high frequency data in June suggests economic data are likely to sequentially improve this month but remain weak compared to pre-second wave levels, Nomura said.

“Beyond Q2 (September quarter), tailwinds such as strong global growth, a vaccine pivot (we expect ~50% of the population to be inoculated by end-2021), easy financial conditions, and front-loaded fiscal activism should push gross domestic product growth to 9.8% year-on-year in 2021 (10.4% in FY22)," it said.

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