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EAI – Monthly Dashboard: Economic activity improves steadily in Feb’23

Expect the RBI to hike rate this week

* Preliminary estimates indicate India’s EAI for GVA grew strongly at 9.4% YoY in Feb’23 v/s 10.1%/3.5% YoY in Jan’23/ Feb’22. The continued strength was broad based with a strong 9.3% growth in industrial activities and the second consecutive double-digit growth in the services sector.

* EAI-GDP also rose decently at 7.7% YoY in Feb’23 v/s 9.4%/5.4% YoY in Jan’23/Feb’22. The sequential deceleration was led by weak consumption growth, which deteriorated to 7.0% YoY in Feb’23 from 8.7% YoY in the previous month (and similar to 6.7% YoY in Feb’22). Investments, on the other hand, posted double-digit growth for the fourth consecutive month and were extremely stable at ~11% YoY for the third month in a row. The slowdown in consumption was largely attributed to weak 2.5% YoY growth in government spending during the month. Private consumption growth was decent at 6.9% YoY in Feb’23 v/s 7.3%/4.4% YoY in Jan’23/Feb’22.

* Among the few indicators available for Mar’23, manufacturing PMI was at a three-month high and auto sales clocked good growth during the month. At the same time, toll collections, freight traffic, railways passenger traffic, and power generation weakened further. In sum, growth appeared to have suffered in Mar’23 as expected.

*Overall, there is no doubt that economic activity weakened in Feb’23 (v/s Jan’23), though the weakness was more gradual than expected. At the same time, growth certainly weakened further in Mar’23. Accordingly, we continue to believe that real GDP could grow at ~5% YoY in 4QFY23, in line with the government’s forecast. Further, with reasonably decent growth and high inflation, another 25bp rate hike is also certain this week.

* EAI-GVA grew 9.4% YoY in Feb’23…: Preliminary estimates indicate India’s EAI for GVA grew at a much faster pace of 9.4% YoY in Feb’23 v/s 10.1%/3.5% YoY in Jan’23/Feb’22. The continued strength was broad based with a strong 9.3% growth in industrial activities and the second consecutive double-digit growth in the services sector (Exhibits 1, 2).

* …with EAI-GDP too rising decently at 7.7% YoY: EAI-GDP also rose 7.7% YoY in Feb’23 v/s 9.4%/5.4% YoY in Jan’23/Feb’22, respectively. The sequential deceleration was led by weak consumption growth, while investment growth was very stable at 11% YoY for the third consecutive month (Exhibits 3, 4).

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