Sequentially, underlying growth maintained the positive momentum seen in July as the economy showed signs of revival after the debilitating second wave of Covid-19, Nomura said.
Key areas of the revival were capital goods, infrastructure and construction production growth, especially the electrical and machinery and equipment segments, the economists wrote.
“This suggests a reactivation of investment demand. By contrast, consumer output growth lags behind. Non-durable consumer goods production growth contracted both sequentially and year-on-year, reflecting declines in pharmaceuticals, medicinals and botanicals. Furthermore, while growth in the production of consumer durables increased solidly on a year-on-year basis (20.2%), it is still negative compared to its levels of two years ago (-8.3%). ”
However, one cause for concern is manufacturing, according to the report.
The latest data from the purchasing managers index showed a moderation to 52.3 in August from 55.3 in July. Anything less than 50 in the index is considered a contraction.
A key reason noted by Nomura was reports from various auto companies cutting production in August and September due to shortages of chips and other parts.
“However, outside of supply bottlenecks, domestic demand continues to be supported by ultra-accommodative monetary conditions, increased vaccines and the pandemic under control (for now). We expect GDP growth to recover by 5.0% quarter-on-quarter, SA, in the third quarter (July-September), although the year-on-year rate will moderate to 7.3%, from 20.1% in the second quarter due to base effects, ”Nomura said.
Nomura believes that a calibrated monetary normalization is at stake in India. In a separate report, Nomura economists expect the repurchase rate to rise by as much as 75 points in 2022 to 4.75%, as inflation expectations show signs of entrenchment and core inflation (which excludes volatile components of food and fuel) remains high. .