ET View: Q2 GDP suggests stronger-than-expected recovery in economic output
As the recovery gathers momentum and Corona-virus infections show a declining trend, what’s needed, clearly, is full resumption of economic activity across services and manufactures, while we adhere to the now-standard Covid-19 protocols of social distancing, mask-wearing and frequent hand-washing.
The national lockdown in late March did severely affect economic activity during Q1–April-June—with GDP contraction estimated at 23.9% for Q1. The latest figures—for Q2—show much improvement in output, broadly speaking. Note that Gross Fixed Capital Formation, which denotes investment demand, has risen to 29% of GDP in Q2, from a low of 22.3% in Q1. External trade in Q2 too seems on a robust growth path, with exports pegged at over 20% of GDP and that for imports put at 19.5%. In the second half- H2, the economy should revert to positive growth, as private final consumption expenditure rises.
For the first half—H1—April to September, the contraction in GDP is estimated at 15.7%, with both consumption and investment affected. In Q2, there’s marked increase in activity in certain segments like car sales and rail freight. Overall, in Q2, manufacturing appears to have recovered far better than services, which have seen lacklustre demand as consumers stay put. Two heads, construction, and trade, hotels, transport and communication have seen over 30% drop in activity in H1, over the same period last year. It remains to be seen how the two segments recover in H2. It should boost growth.
Amidst the pandemic, there is rising funds flows from abroad; given ultra-low interest rates in the mature markets, investors are seeking better returns. The way forward is to policy induce better coagulation of funds on the ground, with stepped-up funding for infrastructure. What’s required is proactive market design for an active corporate bond market so as to shore up funding for long-gestation projects, including from pension funds, insurance companies and foreign portfolio investors. It would smartly boost the growth momentum.
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