India’s factory output unexpectedly expanded in January, while retail inflation eased in February amid fear that the Covid-19 outbreak could weigh on the fragile economic recovery in Asia’s third-largest economy.
The National Statistical Office (NSO) on Thursday said the Index of Industrial Production (IIP) rose 2% in January compared with 0.1% growth a month ago while retail inflation eased to 6.58% in February from 7.59% in the previous month. The decline in inflation could open up space for the Reserve Bank of India (RBI) to provide monetary policy support to boost the economy.
UBS on Thursday reduced its FY21 growth forecast for India to 5.1% from 5.6% estimated earlier. “While the number of reported Covid-19 cases in India is still modest, we believe the fear and uncertainty over its impact could worsen near-term consumer sentiment and hence domestic demand. The impact on production due to shortages of inputs in a few sectors including electronics, pharma, automobiles or reduced external demand on slowing global growth would also have a bearing on India’s growth outlook. This together with weak credit impulse domestically could constrain growth notably over the next two quarters,” it cautioned.
Ratings agency Moody’s Investors Service on Tuesday revised its growth projections for India for the second time in a month from 5.4% to 5.3% in 2020, saying an extensive and prolonged slump as a result of the Covid-19 outbreak will reduce the country’s growth momentum.
The recovery in factory output was led by a pick-up in manufacturing activity which grew at 1.5% while electricity (3.1%) and mining (4.4%) also contributed to the revival.
Among use-based items, the recovery was led by intermediate goods (15.8%) while capital goods (-4.3%) contracted at a lower pace for the 13th consecutive month.
The items that registered the steepest rise in January include active pharmaceutical ingredients; mild steel slabs; separators including decanter centrifuge; electric heaters and steel pipes and tubes.
The easing of retail inflation was led by softening of vegetable inflation to 31.6% in February from 50.2% in January. With the fall in Brent crude futures by 5.5% to $33.8 per barrel on Thursday, softening petrol and diesel prices could to put downward pressure on inflation in coming months.
