Here's Why Economic Recovery Entered Consolidation Phase Last Month

The government will reveal the gross domestic product (GDP) data for the October-December quarter of the current financial year today at around 5:30 pm. According to investment information agency ICRA, the pace of the underlying growth in the economy remains subdued and does not foresee a sharp uptick in GDP expansion in the fourth quarter of the current financial year.  A recent poll by news agency Reuters predicted that the economy is likely to have returned to growth in the third quarter due to the easing of COVID-19 lockdown restrictions. (Also Read: Economy Likely Returned To Growth In December Quarter: Poll )

The median forecast from a survey of 58 economists, conducted this month, put the year-on-year growth at 0.5 per cent in the December quarter, as the economy stabilised after suffering from consecutive contractions of 23.9 per cent and 7.5 per cent in April-June and July-Sept quarters respectively.

According to ICRA, the growth in real terms will strengthen only modestly to 2.6 per cent in the fourth quarter from 0.7 per cent in the third quarter. As many as nine out of 15 high-frequency indicators recorded a weakening of their year-on-year performance in January 2021, compared to December 2020. The sub-set includes the output of passenger vehicles, vehicle registrations, petrol consumption, ports cargo traffic, generation of GST e-way bills, bank credit, as well as deposits. (Also Read: GDP To Expand 0.08% In December Quarter, Growth Pegged At 8.5%: Barclays )

Why did economic recovery enter the consolidation phase in January 2021: 

The six indicators witnessed an improved year-on-year performance in January 2021, compared to December 2020, namely, the non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption, and domestic airline traffic.

After the broad-based improvement seen in December 2020, the year-on-year performance of a majority of early available economic indicators recorded a loss of momentum in January 2021 relative to the previous month.

This was led by a combination of factors such as fading of favourable base effect, supply-side issues, and price hikes, marking a sharp contrast to improvement in economic sentiment brought in by the rollout of COVID-19 vaccines.

The monthly indicators tracked by ICRA include the production of passenger vehicles, motorcycles, scooters, vehicle registrations, the output of Coal India Limited, electricity generation, non-oil merchandise exports, ports cargo traffic, rail freight traffic, generation of GST e-way bills, domestic airlines' passenger traffic, consumption of petrol and diesel, aggregate deposits and non-food credit of scheduled commercial banks.