Weekly Economic Update
In the local economic news, even as financial markets sold off during the week on concerns about the economy going into a soft patch in the short-term due to a surge in the COVID-19 cases, both IMF & RBI have reaffirmed strong growth expectations for the next one year. While International Monetary Fund (IMF) has acknowledged some risks to a sustained recovery due to the recent increase in the COVID-19 cases, it has retained its 2021 growth forecast of 11.5 per cent. Meanwhile, RBI Governor Shaktikanta Das also reiterated that the economy will grow at RBI forecast 10.5 per cent in FY22 and sought to allay concerns about the impact of the rise in the COVID-19 cases.
In another positive development, the government cancelled the last bond auction of Rs 20,000 crore for FY2021, which was slated for March 26 after a review of the government cash balances that were higher due to better-than-expected tax collections for the year . This helped in improving sentiment in the bond market with yields, which settled 6 basis points lower at 6.13 per cent compared to the last week.
In Europe, it appears that the Eurozone returned to growth for the first time in 8 months as Eurozone PMI was measured at 52.5 (readings above 50 signal expansion while readings above 55 indicate a strong expansion) in March compared to 48.8 in February led by a surge in the manufacturing activity (Manufacturing PMI reading was at 62.4 in March and the highest since June 1997). However, the spike in the COVID-19 cases dampened service activity (measured at a reading of 48.8) thereby, indicating a contraction in service activity during the month. Growth in the Eurozone was led by Germany, which measured economic activity with a reading of 56.8, suggesting a strong expansion.
Commenting on the survey results, Chris Williamson, Chief Business Economist at IHS Markit noted that ‘the two-speed nature of the economy (i.e. strong manufacturing and weak services) will persist for some more time, as manufacturers benefit from a recovery in global demand, but consumer-facing service companies remain constrained by social distancing restrictions’.