Economic recovery loses momentum as pent up demand slackens: Report

Economic recovery has lost some momentum as pent up and festive consumption demand dropped in intensity, Acuite Ratings and Research said in a report.

Accordingly, there has been a loss in the momentum of economic recovery in November 2021.

“We observed that after the expansion in two consecutive months our proprietary AMEP (Acuite Macroeconomic Performance) index fell to 111 in November from a post-Covid peak of 124.9,” Suman Chowdhury, Chief Analytical Officer of Acuite Ratings, said.

“The contraction of the index sequentially by 11.2 per cent MoM in November is partly driven by seasonality. However, the magnitude of deceleration is higher than the average of around 6.5 per cent recorded in the last two years in the month of November.”

As per the agency, out of the 16 indicators covered by AMEP index, only five posted a sequential expansion in November, whereas 11 saw a contraction, highlighting a slowdown in the breadth of economic recovery.

“The decline in the index was primarily driven by a weak trend in tractor sales, e-way bills, auto sales, exports, and power generation,” the agency said.

“While inadequate in terms of offsetting the latter weakness, a healthy traction is visible in indicators such as passenger freight, PMI manufacturing, GST collections, employment, and credit growth.”

The agency said that the tractor as well as two-wheeler sales, a key harbinger for a recovery in rural demand, recorded a significant contraction amidst excess and unseasonal rains in some pockets of the country along with delayed harvest in kharif crops which impeded rural cash accruals and thereby fresh purchases.

“On the other hand, the shortage of semiconductors has crippled the entire supply chain weighing on auto sector which thwarted festive season sale.”

Nevertheless, it cited that demand for high contact services sector has been witnessing a strong resurgence of late.

“Continued improvement in passenger freight and increase in PMI services to a near decade high of 58.4 and 58.1 in October and November respectively due to gradual normalisation in retail, hospitality, entertainment, and tourism sector, seems to be suggestive of such an outcome.”

“While mobility around essentials has continued to trend upwards, discretionary movements i.e., retail and recreation as well as parks has also improved significantly. Mobility to ‘workplaces’ is also inching towards the baseline, indicating another significant step towards normalisation.”

According to the agency, the data for December 2021 released so far has further improved with the average index tracking at around 12.8 from 11.1 in November 2021.

“However, going forward, we remain watchful of the risks emerging out of the new Covid variant Omicron as it could possibly lead to renewed restrictions on mobility and impede the nascent improvement in services sector.”

20211226-133802

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