A subdued start to 2020
Economic activity growth at three-month low in Jan’20
3 March 2020
The Economy Observer
Our in-house Economic Activity Index (EAI) for India’s real GVA (called EAI-GVA) suggests that economic growth
weakened from ~6% YoY in Nov/Dec’19 to 5.1% YoY in Jan’20 – lowest in past three months. The deceleration can be
attributed to a high base and a weak services sector led by a decline in fiscal spending.
EAI-GDP growth also came in at a 10-month low of 2.4% YoY in Jan’20, as against average growth of 5% YoY in 2HCY19.
Although investments are expected to have grown for the first time in eight months in Jan’20, weak consumption
activity led by fiscal spending dragged EAI-GDP growth.
Overall, while 2020 was expected to begin well led by 7-8 year high PMI indices, actual data confirm that economic
growth was at a three-month low in Jan’20. Further, since fiscal spending is expected to remain weak in Feb-Mar’20 as
the government attempts to meet its FY20RE deficit target, a recovery in 4QFY20 appears difficult. Consequently, we
believe that real GDP growth would be ~4.5% in 4QFY20 – similar to 4.7% in 3QFY20, implying ~5% growth in FY20.
reveal that India’s EAI for
real GVA grew at 5.1% YoY
in Jan’20 – slowest in three
Although investments are
expected to grow for the
first time in eight months, a
decline in fiscal spending
led to very weak growth in
EAI-GVA growth weakens in Jan’20…:
Preliminary estimates reveal that India’s
EAI for real GVA grew at 5.1% YoY in Jan’20 – slowest in three months and
versus ~6% growth in Nov/Dec’19
Deceleration in EAI-GVA was due
to the high base and the weak services sector led by the first decline in fiscal
spending in seven months and faster decline in passenger traffic. Industrial
sector, on the other hand, grew faster in Jan’20, helped by a broad-based
improvement in manufacturing, power and construction
…along with subdued growth in EAI-GDP:
EAI-GDP growth also deteriorated
from an average of 5% YoY in 2HCY19 to a 10-month low of 2.4% in Jan’20
Although investments are expected to grow for the first time in eight
months, a decline in fiscal spending led to very weak growth in consumption
spending, which dragged EAI-GDP growth
Further, with an
improvement in investments and stable private consumption growth, external
trade subtracted from economic growth as the decline in imports was slower
than that in exports in Jan’20.
Exhibit 2: …led primarily by weak services sector
Exhibit 1: EAI-GVA growth at three-month low in Jan’20…
5.7 5.4 5.8 5.5
6.7 7.5 5.3 5.9 5.8 4.4 7.1 4.9 3.4 2.5 6.0 5.9 5.1
Please refer to our earlier
Contribution of different components to EAI-GVA growth
Source: Various national sources, CEIC, MOFSL
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
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