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LibraryimgBlogimgThe Month That Was – Macroeconomic takeaways from the month of May 2024

The Month That Was – Macroeconomic takeaways from the month of May 2024

  • June 7, 2024
  • By Vivriti Asset Management

Domestic Economic Updates

  • India’s real GDP growth was recorded at 7.8% YoY in the March 2024 quarter, which translated into a growth of 8.2% for FY24 which exceeded the central government’s second advance estimate of 7.6% for the year. The key drivers of growth are private consumption and investment. The growth in the primary sector (agriculture and mining) was recorded at 2.1%, with agriculture at 1.4% and mining at 7.4%. The secondary sector (manufacturing, electricity, construction) grew 9.7%, with manufacturing and construction sectors recording growth of 9.9% and electricity at 7.5%. As per RBI, India’s real GDP growth for FY25 is expected to be 7% with risks evenly balanced.
  • India’s core sector growth slowed to 5.2% in March from 7.1% (upwardly revised) in February. In the entire fiscal year 2023-24, the core sector’s output grew at a 3-year low of 7.5% compared to 7.8% in FY23. This March, fertilizers and petroleum refinery products dragged down the index while steel, electricity, and coal drove up the core sector activity.
  • India’s GST collection became the highest ever in April at INR 2.1 lakh crore, reflecting a YoY increase of 12% from INR 1.87 lakh crore in April 2023 (previous high). The increase was led by a “strong increase in domestic transactions (up 13.4%) and imports (up 8.3%),” the Finance Ministry stated. Among the states, Maharashtra had the top collection (INR 37,671 crore) followed by Karnataka (INR 15,978 crore), Gujarat (INR 13,301 crore), Uttar Pradesh (INR 12,290 crore), and Tamil Nadu (INR 12,210 crore).
  • India’s manufacturing sector started the new fiscal year on a high note as the HSBC India Manufacturing Purchasing Managers’ Index (PMI) came in at 58.8 (revised lower) in April, which is the second highest pace in three and half years driven by buoyant demand. The April print was lower than 59.1 in March, but it was well above the neutral level of 50 and its long-run average of 53.9. Meanwhile, India’s service sector activity remained resilient as the HSBC India Services PMI came in at 60.8 in April compared with 61.2 in March and 60.6 in February.
  • The overall gross capital formation (GCF), which represents the total value of physical assets including fixed assets, inventories, and valuables, in India grew by 6.9% in FY23 to INR 55.3 lakh crore at constant prices. The moderate growth is attributable to a decline in investments in manufacturing, construction, and mining sectors mainly due to a fall in export demand and low private consumption amidst a high interest rate scenario.
  • Retail inflation based on the consumer price index (CPI) softened to an 11-month low of 4.83% YoY in April from 4.85% in March driven by falling prices in the fuel and light segment and easing pressure in prices of clothing and footwear, pan, tobacco, etc. However, food prices remained elevated at 8.7% in April versus 8.52% in March due to a rise in prices of cereals, meat/fish, and fruit. The inflation print remained above the central bank’s target of 4% but stayed within the tolerance band of 2-6%. Meanwhile, inflation based on wholesale prices accelerated to a 13-month high of 1.26% in April from 0.53% in March driven mainly by food articles as rice, pulses, and vegetables continued to post double-digit inflation.
  • The growth in India’s industrial output, as measured by the Index of Industrial Production (IIP), decelerated to 4.9% YoY in March from 5.6% in February due to a slowdown in output growth in mining and infrastructure/construction goods. For the full year FY24, the IIP growth quickened to 5.8% YoY from 5.2% in the previous year driven by a pickup in manufacturing and construction goods output.
  • India’s merchandise trade deficit stood at a 4-month high of US$19.1 billion in April due to a surge in gold and oil imports and a marginal rise in exports. It rose sharply from the 11-month low of US$15.6 billion in March. Exports during the month were affected by seasonal factors.
  • Passenger vehicle sales in the domestic market grew 1.3% YoY to 3,35,629 units in April, data from the Society of Indian Automobile Manufacturers (SIAM) revealed. Sales in the passenger car segment dipped by 23.4% while that in the two-wheeler segment grew sharply by 31% during the month.
  • Net foreign direct investment (FDI) into India plummeted over 62% in FY24 to US$10.6 billion due to increased repatriation of capital and Indian companies’ investments abroad, revealed RBI data. On a gross basis, FDI stood at US$70.9 billion, of which, US$44.4 billion was repatriated through dividends, share sales, or disinvestment while US$15.96 billion was invested overseas by Indian entities. Over 60% of FDI equity flows went to sectors including manufacturing, electricity, computer services, financial services, and retail and wholesale trade. Most of them came from Singapore, Mauritius, the US, the Netherlands, Japan, and the UAE.

Growth forecasts

  • As per the May Bulletin of the Reserve Bank of India (RBI), India’s GDP growth is likely to be 7.5% in the June 2024 quarter driven by rising aggregate demand and non-food spending in the rural economy. It also noted that retail inflation eased last month to 4.8% from 4.9% in March but indicated an uneven pace of alignment with RBI’s target. The alignment has been sluggish as the prices of vegetables, cereals, pulses, meat, and fish may keep the headline inflation elevated and closer to 5% in the near term. This is likely to delay the rate-cut cycle to kick in. The bulletin mentioned that the alignment with the 4% target may begin in the second half of the fiscal year.

Global Economic Updates

 Central bank policy actions

  • The US Federal Reserve maintained the status quo by keeping the federal funds rate target range at 5.25%-5.50% for the 6th consecutive time in its May meeting, citing “a lack of further progress toward the committee’s 2% inflation objective”. Although the Fed is moving towards eventual reductions in the target range it is concerned about recent inflation prints that have been dissatisfactory.
  • The Reserve Bank of Australia maintained the status quo by keeping the policy rate steady at 4.35% following the view that inflation was going down more slowly than expected. The central bank mentioned that there is still excess demand while labour market conditions are tighter. The Bank of England maintained its key bank rate at a 16-year high (since 2008) of 5.25%, in line with expectations. The decision came on the back of inflation that remains elevated despite coming down. However, the governor indicated a rate cut later this year as inflationary pressures ease further.

Inflation readings 

  • Annual inflation rate in the US softened to 3.4% in April (and 0.3% MoM), in line with expectations, from 3.5% in March, which was the highest level since September. The core inflation, which excludes volatile food and energy prices, was 0.3% on a monthly (smallest since December 2023) and 3.6% on an annual basis (lowest since April 2021). Producer price inflation came in at 0.5% MoM, higher than the consensus of 0.3%, and 2.2% YoY in April. Prices for services rose 0.6% MoM, the most since July 2023.
  • Consumer inflation in China accelerated to 0.3% YoY in April 2024 from 0.1% in March. Food inflation continued to decelerate (-2.7% vs -2.7% in March) while non-food inflation accelerated (0.9% vs 0.7% in March) in April.
  • Other Inflation readings: In the Euro zone, inflation slightly eased to 2.4% in April from 2.6% in the previous month. Core inflation, which strips out food and energy prices, eased to 2.7% in April from 2.9% in March. Services recorded the highest inflation (3.7%) followed by food, alcohol & tobacco (2.8%), and non-energy industrial goods (0.9%). Among the member states, Belgium recorded the highest inflation followed by Croatia, Austria, and Spain. In Canada, retail inflation softened to 2.7% in April from 2.9% in March. The inflation rate is the lowest since March 2021. In the UK, inflation cooled off to 2.3% from 3.2% in March and is approaching closer to the central bank target marking its lowest level in nearly three years. In Japan, inflation softened to 2.5% in April from 2.7% in March as food prices rose the least in 19 months and prices of furniture & household utensils, healthcare, etc., eased.

Other economic indicators

  • The consumer sentiment in the US, estimated as an index by the University of Michigan, fell from 79.4 in March (the highest level since July 2021) to 77.2 in April, which was lower than the consensus estimates of 77.9. The fall is attributed to consumers’ uncertainty about the future trajectory of the economy due to the impending election. Economic sentiment indicator in the Euro Area unexpectedly dropped 0.6 points to 95.6 in April 2024 (expectation was 96.9) due to a sharp decline in confidence among manufacturers, which reached its lowest level since July 2020 (-10.5 vs -8.9 in March). The sentiment also deteriorated among service providers (6.0 vs 6.4), retailers (-6.8 vs -6.0), and constructors (-6.0 vs -5.6). Consumer confidence in Japan dipped from 39.5 in March (the highest reading since April 2019) to 38.3 in April and came in below the consensus of 39.7. This happened as the households’ sentiments weakened towards factors like the income growth, employment, willingness to buy durable goods, and overall livelihood.
  • The business activity in the US manufacturing sector contracted as reflected in the ISM Manufacturing PMI which fell from 50.3 in March to 49.2 in April, which is below market expectations. This happened as the new orders index declined to 49.1 from 51.4 in March.
  • The U.S. economy added 175,000 jobs in April 2024, which is the slowest pace of additions in 6 months and came in much below the market consensus of an increase of 243,000. With this, the unemployment rate rose from 3.8% to 3.9% in the month. This might give some confidence to the US Fed officials about the inflation restoring to its 2% target over time.
  • The unemployment rate in the Eurozone stood at a record low of 6.5% in March, the same as in every month since November 2023, and came in line with market expectations. The youth unemployment rate (people under 25 years of age seeking employment) declined from 14.4% in February to 14.1% in March. 
  • UK’s unemployment rate deteriorated to 4.3% in the Jan-Mar quarter from 4.2% in the December quarter, in line with market expectations. Meanwhile, the UK economy grew 0.6% quarter over quarter in Jan-Mar 2024, above forecasts of 0.4%, preliminary estimates revealed.
  • Services Purchasing Manager’s Index (PMI) readings: The ISM Services PMI in the US plunged to 49.4 in April from 51.4 in March, which is the lowest reading since December 2022, and missed market expectations of 52. Services PMI in the Eurozone rose to 53.3 in April from 51.5 in March, marking the strongest growth in nearly a year and exceeding the initial estimate of 52.9. The services PMI in Japan was revised lower to 54.3 (from a preliminary estimate of 54.6) in April compared with 54.1 in March. The Services PMI in India declined to 60.8 in April from 61.2 in March but marked the 33rd straight month of expansion in services activity.




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