ECONOMY

First signs of slowing production cast their dark shadow on sustaining economic recovery

India’s economic momentum remained stable in December even as the first signs of slowing output growth have appeared across some industries. 


That is the reading from the overall activity tracker comprising eight high-frequency indicators compiled by Bloomberg News. While the needle on a dial measuring the so-called ‘Animal Spirits’ has stayed unchanged at 5 for a seventh month, top producers across consumer durables and automobiles signalled weakness as the year wound down. 


The reading probably worsened this month as Omicron-fuelled COVID-19 cases spiked, forcing some States to resort to virus-control measures, including putting curbs on some services and businesses. That’s likely to push India’s policymakers to retain their accommodative bias as the government prepares its annual Budget and rate-setters get ready to review borrowing costs in February.


Activity in India’s dominant services sector expanded for the fifth month, and manufacturing for the sixth, although growth in new work and production lost some momentum, according to IHS Markit. While the composite index slipped to 56.4 last month from 59.2 in November, it held up above its long-run average. 


Exports grew by a robust 39 per cent year-on-year in December to $37.8 billion, the highest monthly tally on record led by commodities, chemicals and electronics. However, the trade deficit remained elevated at close to $22 billion on the back of strong imports. 


Passenger vehicle sales fell for a fourth straight month as production was hit by a global chip shortage. That aside, demand for bank credit grew by a healthy 9.2 per cent at the end of December from a year earlier, while liquidity conditions remained in surplus last month. 


Industrial production growth cooled to a nine-month low of 1.4 per cent in November from a year earlier, which QuantEco Research economist Yuvika Singhal has attributed to factors including a post-festive drop in production and supply-side disruptions. 


Output at infrastructure industries, which makes up 40 per cent of the industrial production index, eased to 3.1 per cent in November. Both data are published with a one-month lag. 

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