Weekly Economic Update

In the local economic news, COVID-19 impacted manufacturing activity in the country during June and the sector experienced its first contraction in 11 months with a reading of 48.1 during the month, a decline from a reading of 50.8 in May. The positive thing was that even though the intensity of the COVID-19 cases was worse, the decline in economic activity was muted compared to the last year. Among the highlights, new export orders declined for the first time in 10 months while employment fell marginally during the month. Another concern was regarding input costs, which continued to increase in June as inflationary pressures remained elevated.  

In other noteworthy news, RBI’s Financial Stability Report has stated that the banking system’s non-performing assets may increase to 9.8 per cent for the year ending March 31, 2022, under the base case scenario, which is lower than the 13.5 per cent projected in January. The central bank has also noted that the banks have sufficient capital to weather even the severe stress scenario, which has non-performing assets set at 11.2 per cent of loans.   

In global economic & market news, Chinese economic growth moderated to a 3-month low in June. The reading came in at 51.3 for the month down from a level of 52 in May. The reading was driven by a softer uptick in production during the month. New export orders were also stagnant in June. Notably, the rate of job creation was the second strongest since January 2013. Inflationary pressures also eased during the month; thereby, helping manufacturers. In Europe, even as COVID-19 cases started increasing again from a 10-week decline, manufacturing activity hit a new high with Eurozone PMI's final reading at 63.1 for the month. Job growth was also solid. Germany, the largest economy in the Eurozone, experienced 2-month high manufacturing activity with a reading of 65.1 in its final reading.   

According to Chris Williamson, Chief Business Economist at IHS Markit, “Eurozone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of COVID-19 containment measures and vaccination progress drove renewed optimism about the future.”