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EAI – Monthly Dashboard: Economic activity grows slowly in Oct’22

Expect 3QFY23 real GDP growth at ~4.5% YoY

* Preliminary estimates indicate India’s EAI for GVA grew at a seven-month low pace of 6.4% YoY in Oct’22 v/s 9.3%/4.5% YoY in Sep’22/Oct’21, respectively. The slowdown was due to moderate growth in both farm as well as non-farm sectors.

* Similarly, EAI-GDP too inched up by only 5.1% YoY in Oct’22 as against 8.6%/4.8% YoY in Sep’22/Oct’21, respectively. This was due to a deceleration in investments growth and 5.4pp negative contribution by external trade during the month. Consumption, on the other hand, grew at a five-month high pace of 10.4% YoY in Oct’22 from 5.7% YoY in Sep’22. A large part of this growth was led by fiscal spending but even after excluding government expenditure, private consumption grew at a four-month high of 5.2% YoY in Oct’22 v/s 3.1% YoY a month ago.

* Notably, government spending has aided economic activity tremendously in Oct’22. Excluding government spending, EAIGDP would have actually contracted 0.4% and EAI-GVA would have grown by only 5.1% YoY in Oct’22.

* A monthly analysis of selected indicators for Nov’22 suggests slightly better trends. Some indicators, such as PMI manufacturing, PMI services, growth in toll collections and power generation have done well. Only vahaan registration has continued to underperform during the month.

* Overall, our in-house estimates suggest that economic activity in Oct’22 deteriorated and is likely to keep deteriorating (v/s 1Q/2QFY23) for the next half of the current fiscal, indicating an adverse impact of high interest rates by the RBI on GDP growth. Accordingly, we expect real GDP growth could be ~4.5% YoY in 3QFY23 as against 6.3% YoY in 2QFY23.

* EAI-GVA grew at a seven-month low rate of 6.4% YoY in Oct’22…: Preliminary estimates indicate India’s EAI for GVA grew at a seven-month low rate of 6.4% YoY in Oct’22 v/s 9.3%/4.5% YoY in Sep’22/Oct’21, respectively. Performance of both the farm as well as non-farm sectors deteriorated in Oct’22 (Exhibits 1, 2).

* …and EAI-GDP too grew slowly during the month: EAI-GDP grew only 5.1% YoY in Oct’22 as against 8.6%/4.8% YoY in Sep’22/Oct’21, respectively. While investments rose slowly in Oct’22, consumption actually grew at a five-month fastest pace during the month. External trade, on the other hand, was a drag to our EAI-GDP growth. (Exhibits 3, 4).

* Consumption growth at a five-month high in Oct’22…: Total consumption growth stood at 10.4% YoY in Oct’22 as against 5.7%/7.1% in Sep’22/Oct’21 (Exhibit 5), respectively. This was led by strong growth in fiscal spending, higher expected IIP for consumer non-durable goods and 32-month high growth in personal credit. Therefore, even after we exclude fiscal spending, private consumption rose at a four-month high of 5.2% YoY in Oct’22 as against 3.1% YoY in Sep’22 (Exhibit 11 for the heat maps).

* …but investment decelerated to a seven-month low: According to our estimates, investments grew 8.4% YoY in Oct’22 v/s 18.4%/6% YoY in Sep’22/ Oct’21, respectively. Out of the 11 indicators we track for investment growth, most of them either grew slowly or contracted in Oct’22 except higher expected IIP for capital goods, better industrial credit, sharp growth in government capex, and stable PMI manufacturing in Oct’22 (Exhibit 12 for the heat maps).

* Weak farm as well as non-farm sectors pull EAI-GVA down in Oct’22: EAI-GVA details suggest that while the farm sector grew only 3.6% YoY v/s 5.5%/2.5% YoY in Sep’22/Oct’21, non-farm sector rose 7% YoY in Oct’22 as against 9.8%/4.6% in Sep’22/Oct’21, respectively. Within non-farm sector, both industrial as well as services sectors performed moderately during the month. All sub-components within the industrial sector – mining, manufacturing, electricity and construction – grew slowly in Oct’22 v/s a month ago. Within services, other than a good growth in real central government spending, all other indicators were a drag (Exhibits 13 for the heat maps).

* Economic activity may be marginally better in Nov’22…: Some indicators, such as PMI manufacturing, PMI services, growth in toll collections and power generation have done well. Only vahaan registration has continued to underperform during the month (Exhibit 14 for the heat map).

* …however, we expect 3QFY23 real GDP growth at ~4.5%: Overall, our in-house estimates suggest that economic activity in Oct’22 deteriorated and is likely to keep deteriorating (v/s1Q/2QFY23) for the next half of FY23, indicating adverse impact of high interest rates by the RBI on GDP growth. Accordingly, we expect real GDP growth could be ~4.5% in 3QFY23 v/s 6.3% YoY in 2QFY23. Although there is no one-to-one correlation between our EAIs and the official GVA/GDP growth due to underlying differences, our composite indices move in sync with the official real GDP (ex-discrepancies) and real GVA estimates (Exhibits 9, 10).

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