Numbers to watch this week: Capex growth, core sector data, external debt
4 min read 27 Jun 2021, 10:10 PM ISTKey indicators due this week, such as the core sector growth, manufacturing PMI and capex figures, will reveal the health of India's economy. The euro area’s June inflation rate will also be closely watched.
PremiumEvery Monday, Mint’s Plain Facts section features five key data releases to keep an eye out for during the week. The euro area’s inflation figures for June will be released this week and will be carefully watched by global markets. In India, indicators such as the core sector index, manufacturing purchasing managers’ index (PMI), and capex figures will help analysts fine-tune their assessment of the pandemic’s economic impact. Here are the five numbers to track:
1. External bebt
India's external debt stood at $563.5 billion by December 2020, declining slightly from 21.6% of gross domestic product (GDP) at September-end to 21.4%. The Reserve Bank of India will release the March quarter figures on Wednesday.
External debt as a share of economic output had been hovering around 20% for three years, but saw an increase in the pandemic year as the GDP shrank. In absolute terms, too, external debt has inched up to its highest-ever level.
However, the swelling pile of foreign exchange reserves provides the much-needed cushion against the debts: for the first time in a decade, forex reserves ($604 billion as of 18 June) exceed external debt.
Commercial borrowings (37%) are the largest component of India’s external debt, followed by non-resident deposits (25%). The general government’s share stands at 19% of total debt.
2. Core growth
Data on core sector output in May will be out on Wednesday. The indicator measures production in eight key infrastructure sectors: coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity. These sectors make up more than 40% of the index of industrial production.
The combined core output rose 56% year-on-year in April, but that was because of a sunken base. A two-year reference period showed the first decline in five months, a clear outcome of the second covid wave that hit large industrial states such as Maharashtra and Tamil Nadu hard. In May, too, a two-year comparison will be more reliable.
The coal sector saw the sharpest sequential downturn (46%) in April, followed by steel (21%). The decline was far softer in natural gas (1.1%) and electricity (3.3%). No respite is likely for May, when most states were under lockdowns.
3. Euro area inflation
Headline inflation surged to 2% in the fast-recovering euro area in May, the first time in three years that inflation touched the European Central Bank’s (ECB) upper limit. The numbers for June are due on Wednesday.
Policymakers seem prepared for high inflation throughout the year and have raised their forecast for 2021 from 1.5% to 1.9%. High energy prices are a key reason. The peak forecast of 2.6% for the last quarter of 2021 shows that some increase in inflation even beyond the 2% limit won’t bother the central bank much, yet.
The ECB’s inaction may be justified. Unemployment is still not at pre-covid levels and all sectors of the economy are not recovering alike. Countries are also recovering at different paces, making monetary tightening risky at this time. So, unlike the US, where a policy shift is likely sooner than expected, the EU looks set to tolerate the inflation jump for now.
4. Manufacturing PMI
The PMI for India’s manufacturing sector will be released on Thursday. The June reading will give the first glimpse of how well the Indian industry has come out of the harsh second covid-19 wave.
In May, the index had hit a 10-month low of 50.8 as most states imposed lockdowns. Being higher than 50, this was still in the expansion zone, but the decline hinted at a significant hit to sales and production. Job losses worsened the outlook, while elevated input costs forced firms to hike selling prices to protect margins. The PMI data is based on surveys of business leaders on five indicators, including new orders, output, and employment.
The easing of the lockdowns will improve the numbers in June. Provisional trade data shows that Indian exports stayed robust with growing demand from advanced economies. The PMI for the services sector, which suffered greater damage than manufacturing in May, will be out on 5 July.
5. Capex growth
The only path to a sustainable economic recovery for India lies in a pick-up in the capex cycle. Private investments have been subdued for many years now, but the pandemic led to an absolute collapse in fresh investments. How far has the second wave impacted investor sentiment? June quarter data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) will provide us with the answer on Thursday.
The March-ended quarter had seen a slight bump in capex announcements, but it was still much lower than pre-pandemic levels. Public sector projects that were expected to be kicked off by now have been delayed and not many private investors may have had the appetite to launch fresh projects now.
The June data, while quantifying the pandemic’s impact on corporate confidence, will also show how various sectors are dealing with the funds crunch and the crisis of confidence that has dampened animal spirits so far.
