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MOSL: FUEL OR ENGINES (Economy)-Private consumption finally moderating-however, income/wealth indicators have also weakened

FUEL OR ENGINES (Economy): Private consumption finally moderating; however, income/wealth indicators have also weakened

 

• The official GDP statistics indicate that real private consumption expenditure (PCE) grew 7.2% YoY in 4QFY19 and 8.1% in FY19, better than the 7.4% growth in FY18 and close to the highest growth in seven years. In nominal terms too, PCE growth of 12% was close to the highest level in six years – a trend similar to that shown by listed FMCG companies. While these numbers don’t suggest any slowdown in PCE, monthly leading indicators paint a very different picture.
• An analysis of 22 monthly indicators linked with PCE suggests that both rural and urban consumption slowed significantly in FY19 (the former slowed more than the latter). As many as 14 out of the 22 indicators witnessed deceleration last year.
• We have been arguing that the current model of consumption-driven growth is unsustainable because it is leading to lower savings, and thus creating financing constraints for investment recovery. The most ideal scenario for sustainable future growth should be driven by savings-led investments, for which consumption growth has to lag income growth. Although consumption (suggested by monthly data) appears to be moderating now, the worry is that four out of six income/wealth-linked indicators have also shown weaker growth in FY19. If so, gross domestic savings (GDS, led by households) may have declined further last year, keeping our concerns intact.