The Economy Observer:EAI - Monthly Dashboard: Economic activity weakened in November`23 By Motilal Oswal Financial Services Ltd
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EAI – Monthly Dashboard: Economic activity weakened in Nov’23
Expect ~6.5% growth in 3QFY24
* Preliminary estimates indicate that India's Economic Activity Index (EAI) for GVA weakened in Nov’23. EAI-GVA growth decelerated to a 5-month low of 7.1% YoY in Nov’23 (vs. 10%/7.5% YoY in Oct’23/Nov’22), due to a sharp slowdown in the industrial sector (up 6.1% YoY in Nov’23 vs. 11.1% in Nov’22) and a subdued farm sector (2.5% vs. 3.9%), partly offset by the continued strong momentum in the services sector (8.5% vs. 6.6%).
* Similarly, EAI-GDP growth was weak at 4.3% YoY in Nov’23 (vs. 2.9%/7.6% YoY in Oct’23/Nov’22). The deceleration in growth was primarily due to muted growth in investments, which grew at a 2-year low rate of 2.4% YoY in Nov’23 (vs. 18.9% in Nov’22) Consumption grew by 4.7% YoY in Nov’23, same as a year ago. Excluding fiscal spending, EAI-GDP grew 3.9% in Nov’23 (vs. 4.6%/9.2% in Oct’23/Nov’22), the slowest in five months.
* Selected high-frequency indicators (HFIs) suggest a further slowdown in Dec'23. The growth in many indicators such as PV sales, air cargo traffic and power generation decelerated last month, while CV sales declined YoY for the first time in five months. Water reservoir levels continued to contract for the 10th consecutive month and manufacturing PMI was at an 18- month low. In contrast, vaahan registrations and toll collections remained robust.
* During the past three quarters, India's real GDP growth has been better than expected, with the RBI expecting 6.5% growth in 3QFY24. We forecast real GDP growth of 6.4% in 3QFY24, while the market consensus is 6.3%. Our EAI estimates suggest a deceleration in India’s GVA/GDP growth toward 6.5%, which means it is difficult to witness another positive surprise in 3QFY24.
* EAI-GVA decelerated to a 5-month low of 7.1% in Nov’23: Preliminary estimates indicate that India's EAI-GVA growth weakened to a 5-month low of 7.1% YoY in Nov’23 (vs. 10%/7.5% YoY in Oct’23/Nov’22), which was led by a sharp slowdown in the industrial sector and a subdued farm sector, partly offset by the continued strong momentum in the services sector (Exhibits 1 and 2).
* Muted EAI-GDP growth due to low investments: Similarly, EAI-GDP growth was weak at 4.3% YoY in Nov’23 (vs. 2.9%/7.6% YoY in Oct’23/Nov’22). The deceleration in growth was primarily led by muted growth in investments, which grew at a 2-year low rate of 2.4% YoY in Nov’23. Consumption grew by 4.7% YoY in Nov’23, same as a year ago. Excluding fiscal spending, EAI-GDP grew 3.9% in Nov’23, the slowest in five months (Exhibits 3, 4).
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