Editor's Pick: Expansion, contraction: Mixed signals from the economy

India’s eight core sectors’ output growth moderated to 12.7% in June, from 18.1% in May, with all sectors except crude oil registering an uptick in production. Coal, cement, electricity and refinery products rose 15% or more, compared with the June 2021 output levels, while natural gas (1.2%), steel (3.3%) and fertilizers (8.2%) grew at a milder pace. Crude oil output dropped 1.7% from a year earlier, returning to contractionary territory after recording the first uptick in several months this May. The Commerce and Industry Ministry also revised the index of eight core industries for March and May. Core sectors’ growth in March was pared to 4.8% from 4.9% estimated earlier, while for May, it was revised higher at 19.3% from the previous estimate of 18.1%. While June marks the second successive month of double-digit growth in core sectors, which constitute about 40% of the Index of Industrial Production (IIP), the overall core output shrank 4.08% compared with the previous month. Cement and fertilizers were the only sectors to record a sequential month-on-month growth in output in June of 6.9% and 0.32%, respectively. Compared to pre-COVID levels, the core sectors reported an 8% growth in June with a healthy performance in all the sectors, except steel and crude oil, said Aditi Nayar, chief economist at rating agency ICRA. The disaggregated trends are exceedingly mixed, she said, ranging from a contraction in crude oil to a robust expansion of 31% in coal. The broad-based moderation in the growth rate to 12.7% from 19.3% in May, Ms. Nayar attributed to the ‘normalising base’ effects from 2021 amid the second COVID-19 wave. “In line with the moderation in the year-on-year performance recorded by most high frequency indicators as well as the core sector in June 2022, we expect the IIP growth to ease to about 11% to 13%,” Ms. Nayar averred. The IIP had grown 19.6% in May. Rajani Sinha, chief economist at CARE Ratings, said the low base from last year helped prop up the growth rate in June, but added she expects further momentum in coming months for the core sectors with a pick-up in investment demand. In July, with the IMF paring down India’s FY23 GDP growth forecast to 7.4%, updating its April World Economic Outlook, due to less favourable external conditions and the rapid policy tightening by the RBI, all eyes are on the economy and the performance of its core sectors, and that makes the story important. Was this newsletter forwarded to you? Head over to our newsletter subscription page to sign up for Editor‘s Pick and more. 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Coal, cement, electricity and refinery products rose 15% or more, compared with the June 2021 output levels, while natural gas (1.2%), steel (3.3%) and fertilizers (8.2%) grew at a milder pace. Crude oil output dropped 1.7% from a year earlier, returning to contractionary territory after recording the first uptick in several months this May. The Commerce and Industry Ministry also revised the index of eight core industries for March and May. Core sectors’ growth in March was pared to 4.8% from 4.9% estimated earlier, while for May, it was revised higher at 19.3% from the previous estimate of 18.1%. While June marks the second successive month of double-digit growth in core sectors, which constitute about 40% of the Index of Industrial Production (IIP), the overall core output shrank 4.08% compared with the previous month. Cement and fertilizers were the only sectors to record a sequential month-on-month growth in output in June of 6.9% and 0.32%, respectively. Compared to pre-COVID levels, the core sectors reported an 8% growth in June with a healthy performance in all the sectors, except steel and crude oil, said Aditi Nayar, chief economist at rating agency ICRA. The disaggregated trends are exceedingly mixed, she said, ranging from a contraction in crude oil to a robust expansion of 31% in coal.  The broad-based moderation in the growth rate to 12.7% from 19.3% in May, Ms. Nayar attributed to the ‘normalising base’ effects from 2021 amid the second COVID-19 wave.  “In line with the moderation in the year-on-year performance recorded by most high frequency indicators as well as the core sector in June 2022, we expect the IIP growth to ease to about 11% to 13%,” Ms. Nayar averred. The IIP had grown 19.6% in May. Rajani Sinha, chief economist at CARE Ratings, said the low base from last year helped prop up the growth rate in June, but added she expects further momentum in coming months for the core sectors with a pick-up in investment demand. In July, with the IMF paring down India’s FY23 GDP growth forecast to 7.4%, updating its April World Economic Outlook, due to less favourable external conditions and the rapid policy tightening by the RBI, all eyes are on the economy and the performance of its core sectors, and that makes the story important. Was this newsletter forwarded to you? 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