Economic activity continues on normalisation, FY21 GDP to contract 6.7%

Economic activity continued with its pace of normalisation and the festivities helped narrow the deficits as compared to the year-ago period in December, a Japanese brokerage said on Wednesday.

Based on data shown by its proprietary models, Nomura also revised up wits FY21 GDP forecast to a contraction of 6.7 per cent, as against the official estimate of a 7.7 per cent contraction in the pandemic-impacted fiscal year.

The Nomura India Monthly Activity Indicatorrose to-2.3 per cent in December provisionally when compared to the year-ago period's performance, and was much better than the -7.7 per cent year-on-year witnessed in November and -13.3 per cent in September, it said.

The brokerage said this suggests a strong recovery in Q4. The pandemic situation did not substantially deteriorate in the festive season in December quarter, clearing the decks for a faster pace of economic normalisation, it said.

"We expect GDP growth of-6.7 per cent y-o-y in FY21, before rising to 13.5 per cent in FY22, above consensus (10 per cent).Along with the moderation in inflation in the short term due to lower food prices, we believe the economy is entering a Goldilocks period," it said.

It can be noted that earlier in the day, analysts at its American peer Bofa Securities also pegged the GDP to close FY21 with a contraction of 6.7 per cent.

The Japanese brokerage said an index which it uses as a proxy for the extent of normalisation across the economy suggests economic activity continued to improve during December.

At the end of the festive season, the overall normalisation index for consumption improved to 88.3 per cent in December as against 87 per cent in November and 85 per cent in October, it said.

For passenger cars, two-wheelers and tractors, the normalisation index readings are higher than their respective pre-pandemic levels while on the investment front, the index is trending at 93 per cent, which is 3 percentage points below pre-pandemic levels, it said.

Similarly, indicators on external sector and aggregate supply also showed improvements, it said.