Weekly Economic Update

In the local economic news, while Manufacturing PMI for India contracted to a reading of 48.1 as noted last week, the services sector recorded a significant contraction during the month of June with a reading of 41.2. Notably, new orders contracted sharply during the month. The contraction in services represents a deepening of the slowdown that began in April with the COVID-19-induced lockdowns that began in late April. Job growth also contracted with unemployment falling for the seventh consecutive month. Composite PMI, which considers both manufacturing & services, registered a reading of 43.1 during June (lowest since July 2020).  Interestingly, prices charged for goods & services rose marginally in June. 

In other noteworthy news, amid a pick-up in global growth, Indian exports expanded 47.34 per cent to US $32.46 billion in June, compared to the year-ago levels of US $22 billion. Exports also increased from a normalised level of US $25 billion in June 2019. Imports were mostly unchanged from the 2-year ago level at about US $41 billion in June. The country, thus, posted a trade deficit of US $9.4 billion in June, a decrease of 16 per cent from 2 years ago. Commerce & Industry Minister Piyush Goyal reaffirmed the government’s commitment to achieving the target of US $400 billion in exports for the fiscal year.  

In global economic & market news,  China’s State Council (equivalent to their Cabinet) has signalled a shift towards an easing of monetary policy even as the possibility of a reduction in the US central bank’s bond-buying programme looms over investors over the next several months. Economists note that the move may support the economy, which is seen as slowing due to the recent rise in commodity prices as well as a moderation in consumption. Meanwhile, the Chinese central bank may reduce the reserve ratio requirement (RRR) in the months ahead.  

In Europe, European Central Bank (ECB) has reset its inflation target to 2 per cent from the previous target of below 2 per cent in a move to support continued policy accommodation in the months ahead. It also stated that it would tolerate temporary inflation rates above 2 per cent to ensure that the economy was on a growth path. In another decision, ECB also stated that it would focus on climate change by tilting its asset purchase programmes away from the bonds of heavy carbon-emitting industries.