Mumbai/New Delhi: The Indian economy’s momentum continues to slow, shows the latest update of the Mint Macro Tracker, launched in October last year to provide a state-of-the-economy report each month based on trends across 16 high-frequency economic indicators.
The Mint Macro Tracker shows that out of the 16 macroeconomic indicators, only four were in the green (above the five-year average trend) as of January 2019, while eight indicators were in the red (below the five-year average trend). This reading is significantly worse than what it was six months ago, the data shows.
January’s score is also a shade worse than that of December 2018—which itself marked a downward slide compared to previous months—when five indicators were in the green, and eight indicators were in the red.
The domestic consumer economy remains the weakest spot, with automobile sales falling, air passenger traffic sluggish, and tractor sales anaemic.
Data from the consumer confidence surveys of the Reserve Bank of India (RBI) shows that the gap between respondents who claim to have raised non-essential spending and respondents who claim to have lowered non-essential spending has been shrinking in recent months, with 14.3% net positive response in December 2018 compared with 22.3% net positive response in September 2018.
The external sector is another big cause for worry, with India’s trade balance moving from amber to red over the past month. Sluggish export growth combined with high gold imports have widened India’s trade balance once again. With global demand conditions expected to remain weak, and India’s small exporters still recovering from the twin shocks of demonetisation and goods and services tax (GST), an export revival is unlikely. With foreign inflows remaining volatile because of rising political risks, India’s external account and the rupee will remain vulnerable in the coming months.
The industrial sector report card appears to be similar to what it was last month.
While core sector growth (which captures trends in eight key industries—electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers) has continued to disappoint with the latest growth figures showing an 18-month low, the purchasing managers’ index (PMI) manufacturing index showed an improved reading in January compared with the previous month.
Non-food credit growth too continues to be above the trend but it is worth noting that this comes on the back of a very low base, and does not suggest a rapid expansion in credit off-take.
As Neelkanth Mishra and Prateek Singh of Credit Suisse pointed out in a 20 February note, the total lending by banks and non-banking financial companies (NBFCs) in the December 2018 quarter was lower than what it was in the December 2015 quarter. It remains to be seen how far the recent RBI rate cuts pushes up credit growth in the coming months.
The December quarter earnings for most listed firms were disappointing, with profit growth slowest in five quarters, and the outlook does not appear rosy, with analysts cutting earnings estimates for a plurality of firms. The earnings per share forecast was cut for 151 of the 253 companies tracked by at least 10 analysts, according to data compiled by BloombergQuint.
The price signals continue to offer mixed signals, with headline inflation low but core inflation relatively high over the past few months. Rural wage growth has continued to remain disappointingly low. The job outlook has been improving, at least in urban areas, according to data from RBI's consumer confidence surveys.
Overall, the economic momentum appears quite weak in the country today. With global growth expected to remain muted over the next few months, and with domestic political risks high in the backdrop of the upcoming Lok Sabha elections amid a high-wire conflict with Pakistan, investments and growth are likely to remain subdued in the Indian economy.