BackWorst may be over, economy to grow gradually from June as unlock starts: Nomura
The hit to growth in second quarter will be a fraction of what it was during the first wave and also less than currently feared by consensus, economists said
PremiumMumbai: With virus cases receding and a measured re-opening now underway across states, high frequency data have turned a corner, according to Nomura. Spearheaded by mobility and power demand, the Nomura India Business Resumption Index (NIBRI) has bottomed in May, and has since registered two consecutive weeks of increase.
“This suggests that the month of May will experience the worst economic impact and June should be sequentially better," said Sonal Varma and Aurodeep Nandi, economist, Nomura. They hold their view that the hit to growth in second quarter will be a fraction of what it was during the first wave and also less than currently feared by consensus.
For the week ended 6 June, the NIBRI, which tracks high frequency data, rose to 69.7 (100 is the pre-pandemic level) from 62.9 in the previous week, and 60.2 at its nadir. This indicates that over the last couple of weeks, the NIBRI has rise by 9.5 percentage points from the bottom, and is currently 30 pp below pre-pandemic levels.
Google workplace and retail & recreation mobility are up by over 8 percentage points from the previous week’s levels, while the Apple Driving Index has risen even more sharply, by 12 percentage points. Traffic congestion has also started picking up and railway passenger daily revenues have risen to ₹460 crore from a low of ₹160 crore in mid-May.
Power demand, by contrast, picked up by 7.6% week-on-week, after rising by over 5% in the previous week, reversing several weeks of contraction. The labour participation rate has remained stable at around 39%, although the unemployment rate has picked up to 13.6% vs 12.2% in the previous week.
According to Varma and Nandi, pace of relaxation of lockdowns and of vaccinations near-term are two factors on which growth dynamics will remain crucially contingent on. The former will determine the speed of recovery in mobility and broader economic activity, while the latter will be important for ensuring that the number of cases remains in check and the lockdown easing remains sustained.
“So far, early monthly data for May suggest a bigger impact on consumption and services, with manufacturing and the export sector having held steady. Importantly, the hit during the second wave is turning out to be significantly less than the first wave across-the-board," said Varma and Nandi.
Although the Oxford Stringency Index for India remains elevated, states such as Maharashtra, Uttar Pradesh, Gujarat, Delhi and Tamil Nadu are now migrating towards a measured easing of restrictions in view of the fall in cases. Shops and offices are reopening with restricted times, and districts with lower positivity rates are set to have a more pronounced rollback of restrictions.
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