India’s economic activity showed early signs of cooling off in June as acute price pressures, rising interest rates, and a falling rupee dampened sentiment after a strong showing the previous month.
Softer increases in factory orders dragged the manufacturing sector, pushing the needle on a dial measuring so-called ‘Animal Spirits’ back to 5, from 6 earlier. The gauge, based on eight high-frequency indicators compiled by Bloomberg News, uses a three-month weighted average to smooth out volatility. A move to left signifies a loss of momentum.
Recovery Stumbles
India’s economic activity showed signs of faltering in June
Sources: Bloomberg, S&P Global
NOTE: Overall activity reading is generated aggregating the three-month weighted averages of eight indicators against the past 30 months of historical data. The indicators are S&P Global India Composite PMI, Output Price Index, Order Books Index, Citi Financial Index, Government of India data on exports, industry and infrastructure sectors, as well as RBI data on demand for loans
Pent-up consumption had powered revival in Asia’s third-largest economy, but rising prices, due in part to the war in Ukraine and supply disruptions, thwarted the nascent recovery. The Reserve Bank of India raised rates by 90 basis points in two moves to temper price gains and is scheduled to hold its next review from Aug. 2-4.
India’s rupee fell past 80 to a dollar as foreign investors pulled out money amid monetary policy tightening by the Federal Reserve. A declining currency may also prevent a faster pass-through of commodity slump, thereby delaying revival.
Below are details of the dashboard. (For an alternative gauge of growth trends, follow Bloomberg Economics’ monthly GDP tracker — a weighted index of 11 indicators.)
Business Activity
Purchasing managers’ surveys showed India’s services activity rising to the highest level in more than a decade. At the same time, expansion in manufacturing slowed, pulling down the S&P Global India Composite PMI Index a tad in June.
Demand in India’s dominant services sector strengthened after a wider reopening from the pandemic, but elevated input costs risk roiling sentiment and hurting demand. “Middle-to-high income households are likely to prioritize spending on contact intensive services that were avoided during the pandemic, at the cost of consumer durables,” according to ICRA Ltd. Chief Economist Aditi Nayar.