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MOSL: ECOSCOPE-Economic activity weakens again in Aug’19-Sharp decline in investments offset higher fiscal spending

ECOSCOPE: Economic activity weakens again in Aug’19; Sharp decline in investments offset higher fiscal spending

 

• Our in-house Economic Activity Index (EAI) for India's real GDP (called EAI-GDP) suggests that economic growth weakened from 6.8% YoY a month ago (and 8.2% a year ago) to 4.9% YoY in Aug'19, driven primarily by almost record decline in investments. Almost all sub-components of investments declined in Aug'19, which were only partly offset by better consumption, led by higher growth in fiscal spending.
• EAI-GVA index growth also weakened to 5.1% YoY in Aug'19, weaker than 6.5% a month ago and 9.3% a year ago. The weakness was again broad-based, as non-farm economic growth weakened from 7.1% a month ago to 5.3% YoY in Aug'19. Services sector grew slowly at 6.3% YoY in the month, led by sharp decline in passenger and freight traffic.
• Overall, notwithstanding the ~33% YoY real growth in fiscal spending in Aug'19, the worst decline in investments in more than a decade and the second-worst in the past two decades (-8.7% YoY in Feb'09) dragged EAI growth for the month. With ~6% growth in Jul-Aug'19, India's economic activity appears to have bottomed out in 1QFY20. Thus, we believe that real GDP growth will improve to 5.7-5.8% YoY in 2QFY20.