Early indicators of economic activity in July show improvement over June: Nomura

Early indicators of economic activity in July, like auto sales and electricity consumption, showed an improvement over June even as factory output contracted more sharply in July compared to the previous month, according to Nomura.

The July uptick reflected post-lockdown normalisation and pent-up demand driven largely by a recovery in rural demand, however, the continuous rise in daily cases posed a growing risk of tapering sequential improvements, it said in a report on Monday.

“Early economic data for July such as auto sales and electricity consumption have continued to post a stronger recovery than what a flattening mobility curve would suggest, though the July manufacturing PMI dipped in India (to 46.0 vs 47.2 in June), even though it picked up in the majority of other Asian economies,” Nomura said.

“With daily cases continuing to pick up both nationally and in traditionally safer states (in the south and the east), the freeze in the NIBRI (Nomura India Business Resumption Index) indicates a growing risk that the sequential improvement in activity could taper,” it added.

These concerns assume importance as not only did the country see the highest daily cases globally on Monday at 52,972 fresh cases, but the infection was increasingly spreading in rural areas which is said to be leading the recovery.

The NIBRI, which is a weekly tracker of the pace at which economic activity normalises, remained broadly unchanged at 70.4 for the week ending August 2. The previous week ending July 26 also showed a similar result of 70.3 over the week ending July 19 at 70.

While this freeze in NIBRI growth formed the base of Nomura’s concerns, it was 2.7 percentage points (pp) higher than June levels, the report said. However, this was still 30pp below normal activity levels, it added.

The report also noted that power consumption showed a weekly contraction of 2% where it had grown 3.5% during the previous week.