What high-frequency indicators show about the economy as Omicron threat emerges

The Omicron variant of the coronavirus may have already begun hurting the Indian economy’s prospects, even though its full impact on the country’s health infrastructure and the health of its people at large may become visible after a couple of months. At least that is what latest data seems to suggest.

A report by Bloomberg News says that while eight high-frequency indicators it has been tracking were steady till the last month, the pace of activity has since slowed down as concerns around the new variant’s spread and virulence gain momentum. 

So, what exactly has Bloomberg surmised from its analysis of the numbers?

Bloomberg says that the pace of activity – based on indicators from demand for services to factory output – faces threats from rising cases of the Omicron variant, first detected in South Africa toward the end of last month.

Moreover, the report says that while the Reserve Bank of India this month kept its full-year growth forecast steady at 9.5%, Governor Shaktikanta Das sounded caution, saying “it is too premature to gauge” the effects of the new strain at this stage.

The report says that while there are no crippling restrictions yet, capital New Delhi cancelled all Christmas and New Year’s festivities and joined some other states in reimposing night curfew as cases ticked up. Moreover, the central government separately announced widening the vaccination drive to include most teenagers and providing booster shots to vulnerable sections.

How has the trajectory of the business activity in India’s dominant services sector looked over the last few quarters?

Activity in India’s services sector expanded in November for the fourth consecutive month while the manufacturing purchasing managers’ index climbed to 57.6, the best showing since January, according to IHS Markit. That helped lift the composite index to the highest level in about a decade, with new orders also notching their top reading since February 2012.

How have exports done in the recent months?

Exports grew 27% year-on-year in November, slower than the 43% pace seen in the previous month. Imports rose 57%, reflecting a surge in demand for gold, iron and steel, machinery and electronic goods as economic activity rebounds, the report says. 

And what about consumer demand and industrial activities?

Passenger car sales fell for a third straight month, as the global chip shortage hit production. That hiccup apart, RBI data showed demand for bank credit grew 7% in November from a year earlier, reflecting momentum in consumption trends. Liquidity conditions still showed a surplus last month, implying easy credit availability, the report notes.

Another set of data shows that industrial production expanded 3.2% in October from a year earlier, a slower pace than during the first five months of the fiscal year as the favourable base effect wears off.

Output of infrastructure industries, which makes up 40% of the industrial production index, expanded 7.5% in October. To be sure, both data sets are published with a one-month lag, so there could be some surprises on this count next month.