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Economic activity moderates in Oct’21 and likely weakens further in Nov’21

Expect real GDP growth at ~5% YoY in 3QFY22

* Our in-house Economic Activity Index (EAI) for India’s GVA (EAI-GVA) posted eight-month low growth of 3.9% YoY in Oct’21, against 5.4% YoY in Sep’21. Lower EAI-GVA growth was attributable to a weak Non-Farm sector, while the Farm sector performed sequentially well in Oct’21. On the contrary, EAI-GDP grew faster by 5% YoY in Oct’21, against 2% YoY growth in Sep’21. While consumption and investments weakened, external trade contributed more to EAI-GDP growth in Oct’21.

* Total consumption growth was modest on account of slower fiscal spending in Oct’21. Private consumption growth picked up to 6.4% YoY in Oct’21, compared with 6.1% in Sep’21. Total investment growth at 6.4% YoY was the weakest in eight months, and government capex actually contracted 24% YoY in Oct’21.

* While growth in imports was still higher vis-à-vis exports, the contribution of net exports to EAI-GDP improved. The negative contribution to EAI-GDP growth was only 2.5 percentage points (pp) in Oct’21, against -7.7pp in Sep’21.

* Additionally, while the Farm sector grew at the three-month fastest pace of 2.6% YoY, the Non-Farm sector grew at eight-month lows of 4% YoY in Oct’21. Within the Non-Farm sector, both industrial and service activity weakened in Oct’21. In fact, core government spending (total spending minus interest minus subsidies) contracted in Oct’21.

* Additionally, a monthly analysis of certain indicators for Nov’21 suggests further weakness in economic activity. Indicators such as PMI manufacturing, Vahaan registrations, and mobility indices improved, while foreign trade, power generation, toll collections, and e-way registrations weakened in Nov’21.

* Overall, our in-house estimates suggest slower EAI-GVA growth in Oct’21, and although EAI-GDP growth picked up vis-àvis Sep’21, it was modest at just 5%. With the favorable base effect fading out, current trends seem to be weaker than the general expectation. We expect moderation in real GDP/GVA growth to ~5% YoY in 3QFY22, from 8.5% in 2Q.

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