High-frequency indicators present a mixed picture in 2023, with several continuing to pick up while others showing a loss in momentum.
The Indian economy grew at a decelerating pace of 4.4% in the October-December quarter, compared with 6.3% in July-September. For the ongoing quarter, while the NSO estimates an implicit growth rate of 5.1% but indicators has flashing mixed signals.
Services PMI rose to 59.4 in February—the highest in 12 years—even as the Manufacturing PMI was little changed from the previous month at 55.3 in February. Domestic sector services activity remains resilient as also shown by GDP data, with services leading the way even as manufacturing activity sees some moderation, Rahul Bajoria, chief economist at Barclays, said.
Data on sectoral deployment of bank credit, too, remained robust in January, led by services which grew 21.5% year-on-year and retail loans which grew 20.4%.
Manufacturing, too, showed some signs of a pick-up with the index of eight core industries firming up to a four-month-high of 7.8% year-on-year in January. The positive feature of the latest core sector data was that all the segments, barring crude oil, provided succour to the overall index like in the previous month, according to a note by India Ratings.
Incoming data has been mixed in recent weeks, according to a research note by Madhavi Arora, lead economist at Emkay Global Financial Services. Formal sector employment growth seems to be slowing, as indicated by the sequential fall in EPFO new payrolls, while real rural wages have improved with NREGA employment demand having reduced and rabi sowing being strong, she said.
"However, we keep an eye on the upcoming rabi harvest, given that a potential heatwave is threatening to throw a spanner in the works," Arora said.
Meanwhile, capex indicators are healthy, with capacity utilisation further improving and signs of rising new-project announcements. Yet, momentum of the recovery remains below full strength. This, in conjunction with higher global uncertainty, tightening global financial conditions, lower corporate profitability, still-elevated inflation and tighter policy reaction function of the RBI, will further curb domestic demand, according to Arora.
Economic activity moderated marginally in January this year, according to Teresa John, economist at Nirmal Bang Institutional Equities. Early data for January indicate that 71.9% indicators were in the positive territory on an annual basis, down from 78.1% in December last year, according to John's analysis. Around 82.9% indicators (where three-year CAGR can be calculated) were above the pre-pandemic level in January, unchanged from December, she said.
On a sequential basis, the growth momentum slowed in January, according to John, with around 53.1% indicators in the positive territory in January, down from 68.8% in December.
However, according to Nikhil Gupta, chief economist at Motilal Oswal, India's economic activity accelerated in January. Preliminary estimates indicate that India's economic activity index grew at a seven-month high of 9.9% year-on-year in January as against 6.9% year-on-year in December, driven by acceleration across all sectors.
A favourable base appears to have helped January readings, according to Gupta. Of the six available indicators for February, only PMI manufacturing and Vahan registration have done better on on annual basis, while toll collections, power generation, forex reserves and currency with public decelerated.
Thus, it is highly likely that economic growth weakens in February-March 2023, Gupta said, forecasting GDP growth in the range of 4.6-4.8% year-on-year.
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