Home > Finance > Economy saw growth rebound through Q2FY21: Nomura

Economy saw growth rebound through Q2FY21: Nomura


The economy saw growth rebound through the second quarter of the ongoing fiscal with gross domestic product (GDP) contraction likely to have narrowed to -10.4% from the sharp -23.9% seen in the previous quarter, according to brokerage firm Nomura.

The Nomura Monthly Activity Indicator, which takes into account high-frequency indicators from across sectors, improved to -8.6% year-on-year in September from -19.7% in August and a record low of -37.8% in June, “implying a swift GDP growth rebound”, the firm said in a report on Tuesday.

In the run-up to the festive season, aggregate demand recovered to 77% of normal in September against 71% recorded in the month earlier while aggregate supply picked up to 92% of normal in September against 86% in August, it said.

While terming the improvements in September ‘solid’, the report titled, ‘Activity improves, but is this a false dawn?’, questioned the durability of the rebound beyond the festive season.

Uneven recovery

The report highlighted the uneven pace of sequential recovery with momentum picking up in investment, industry and the external sector but slowing in consumption and services.

While consumption, investment and the industrial sector recovered to 84%, 85% and 89% of pre-pandemic levels in September, “Recovery in the services sector remains glacial at 30.5% of normal vs 29% in August, as the transportation slowly returns to normal,” the report said.

Despite these improvements, Nomura stuck to its earlier forecast of a 10.8% contraction for the economy in FY21 along with negative growth estimates for the remaining quarters (-5.4% in Q3 and -4.3% in Q4).

According to the report, the pick up in indicators could signal a “faux recovery” limited to festive consumption while the gains made in reducing the daily Covid-19 cases could be reversed due to the movement of people around the season and the Bihar elections, resulting in a drag on growth momentum.

“The underlying weakness in the labour market (pressure on household incomes) and the government’s underwhelming demand side fiscal support are also a concern,” Nomura said.

Inflation and Monetary Policy

While the space for monetary policy remained constrained with inflation likely to remain elevated in October, inflationary pressure is likely to retrace over the next 6-12 months as food prices begin to correct and a favourable base effect and easing of restrictions on logistics disruption start kicking in from December, the report said.

The brokerage still expected another 50 basis point policy rate cut from the Reserve Bank of India but said this would only be possible in the first half of 2021.

“We remain less confident in the durability of the growth recovery and the limited fiscal support effectively means that the policy ball firmly remains in the RBI’s court,” it said, adding that open market operations and tools like the Targeted Long Term Repo Operations are likely to be the new normal.

Source link

TAGS , , , , , , , ,
Hi guys, this is Kimmy, I started LicensetoBlog to help you with the latest updated news about the world with daily updates from all leading news sources. Beside, I love to write about several niches like health, business, finance, travel, automation, parenting and about other useful topics to keep you find the the original information on any particular topic. Hope you will find LicensetoBlog helpful in various ways. Keep blogging and help us grow as a community for internet lovers.