Despite elevated price pressures, broad based sequential pickup is a positive
India's Index of Industrial production (IIP) soared to a 9-month high of 19.6% YoY in May-22 from a downwardly revised print of 6.7% in Apr-22 supported by a favourable base from May-21 that saw the peak of Delta wave of Covid weigh on industrial activity. Nevertheless, on sequential basis, the index recorded a healthy expansion of 2.3% MoM in May-22 from a contraction of 9.5% in Apr-22. The improvement seems to be in line with most of lead indicators of economic activity such as PMI, GST collections, core infra output, railway freight and port traffic along with bank credit that continue to underpin the recovery underway in manufacturing activity.
Acuité expects the pace of IIP recovery to come under pressure given the prolonged headwinds from ongoing Russia-Ukraine, elevated price pressures and slowing global growth. World Bank became the latest international agency to cut 2022 global growth outlook sizeably to 2.9% from 4.1% anticipated in Jan-22 (following downgrades from IMF and OECD). Nevertheless, the latest data indicates that the concerns of slowdown or even recession in some nations have started to have a counter effect on the global commodity prices. While crude oil prices still continue to rule above USD 100 pb (while has moderated from USD 115 pb in Jun-22), prices of metals, precious metals, fertilizers, and non-energy commodities have clearly moderated to some extent. Further, government's orientation towards capex, expectation of a normal South-west monsoon driving rural demand improvement, and services led recovery with opening up of the economy after the pandemic disruption should provide support to growth. Considering these factors, India's GDP growth is expected to be at 7.5% in FY23.
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