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Economic activity weakens further in Nov’21, as expected

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

* Our in-house Economic Activity Index (EAI) for India’s GVA (EAI-GVA) posted nine-month-low growth of 2.2% YoY in Nov’21, compared with 4.1% YoY growth in Oct’21 and 5% in Nov’20. The lower EAI-GVA growth was broad-based. The Farm sector grew at the slowest pace in three months, while Industrial and Services activity grew at the slowest pace in nine months in Nov’21. Similarly, EAI-GDP grew just 2.4% YoY in Nov’21, against 4.6% YoY growth in Oct’21.

* Total consumption growth weakened in Nov’21 on account of a) faster decline in automobile sales, b) the first decline in nine months in petrol sales, and c) slower fiscal spending growth. Private consumption growth eased to five-month lows of 5.9% YoY in Nov’21, compared with 6% in Oct’21. Total investment growth at 3.9% YoY was the weakest in nine months, and government capex contracted for the second consecutive month in Nov’21. Both real exports and imports grew slowly in Nov’21 (vis-à-vis Oct’21); however, the contribution of net exports to EAI-GDP worsened.

* From a GVA perspective, the Farm sector grew 0.7% YoY slower v/s the 1.3% growth reported in the previous three months. Conversely, the Non-Farm sector expanded just 2.4%, vis-à-vis 4.3% growth in Oct’21. The Services sector grew 2.1% YoY in Nov’21, slower than 2.6% growth posted in the Industrial sector.

* An analysis of the few available monthly indicators for Dec’21 suggests there was no major improvement in economic activity last month. PMI manufacturing weakened and vahaan registrations declined at a faster pace; however, merchandise imports and power generation fared better in Dec’21 (vis-à-vis Nov’21).

* Overall, our in-house estimates suggest growth in economic activity weakened further in Nov’21, as expected. With the favorable base effect fading out, current trends appear weaker than the general expectation. We continue to expect moderation in real GDP/GVA growth to ~5% YoY for 3QFY22 v/s the market consensus of ~6%.

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