Early this morning we got news on a topic we have been pursuing for several years now and as has become familiar it showed quite an economic slow down.
At 27.4 in April, the seasonally adjusted IHS Markit India
Manufacturing PMI® fell from 51.8 in March. The latest reading pointed to the sharpest deterioration in business conditions across the sector since data collection began over 15 years ago.
It caught my eye also because it was the lowest of the manufacturing PMI series this morning. Although some care is needed as the decimal point is laughable and the 7 is likely to be unreliable as well. But the theme is clear I think. Of course much of this is deliberate policy.
The decline in operating conditions was partially driven by
an unprecedented contraction in output. Panellists often
attributed lower production to temporary factory closures that were triggered by restrictive measures to limit the spread of COVID-19.
So that deals with supply and here is demand.
Amid widespread business closures, demand conditions were severely hampered in April. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey’s history, far outpacing that seen during the global financial crisis.
So there was something of a race between the two and of course external demand was heading south as well.
Total new business received little support from international markets in April, as new export orders tumbled. Following the first reduction since October 2017 during March, foreign sales fell at a quicker rate in the latest survey period. In fact, the rate of decline accelerated to the fastest since the series began over 15 years ago.
The plunges above sadly have had an inevitable impact on the labour market as well.
Deteriorating demand conditions saw manufacturers drastically cut back staff numbers in April. The reduction in employment was the quickest in the survey’s history. There was a similar trend in purchasing activity, with firms cutting input buying at a record pace.
Background and Context
We learn from noting what had already been happening in India.
Real GDP or Gross Domestic Product (GDP) at Constant (2011-12) Prices in the year 2019-20 is estimated to attain a level of ₹ 146.84 lakh crore, as against the First Revised Estimate of GDP for the year 2018-19 of ₹ 139.81 lakh crore, released on 31st January 2020. The growth in GDP during 2019-20 is estimated at 5.0 percent as compared to 6.1 percent in 2018-19. ( MOSPI )
Things had been slip-sliding away since the recent peak of 7.7% back around the opening of 2018. So without the Covid-19 pandemic we would have seen falls below 5%. In response to that the Reserve Bank of India had been cutting interest-rates. I would have in the past have typed slashed but for these times four cuts of 0.25% and one of 0.35% in 2019 do not qualify for such a description.
Before that was the Demonetisation episode of 2016 where the Indian government created a cash crunch but withdrawing 500 and 1000 Rupee notes. This was ostensibly to reduce financial crime but also created quite a bit of hardship. Later as so much of the money returned to the system it transpired that the gains were much smaller than the hardship created.
For newer readers you can find more details on these issues in my back catalogue on here.
Looking Ahead
On April 17th the Governor of the RBI tried his best to be upbeat.
India is among the handful of countries that is projected to cling on tenuously to positive growth (at 1.9 per cent). In fact, this is the highest growth rate among the G 20 economies………For 2021, the IMF projects sizable V-shaped recoveries: close to 9 percentage points for global GDP. India is expected to post a sharp turnaround and resume its pre-COVID pre-slowdown trajectory by growing at 7.4 per cent in 2021-22.
He was of course running a risk by listening to the IMF and ignoring what the trade date was already signalling.
In the external sector, the contraction in exports in March 2020 at (-) 34.6 per cent has turned out to be much more severe than during the global financial crisis. Barring iron ore, all exporting sectors showed a decline in outbound shipments. Merchandise imports also fell by 28.7 per cent in March across the board, barring transport equipment.
On Friday the Business Standard was reporting on expectations much more in line with the trade data.
While acknowledging some downside risks from a lockdown extension in urban areas beyond 6 June, we maintain our GDP projection of 0% GDP growth for CY2020, and 0.8% for FY21,” wrote Rahul Bajoria of Barclaysin a report.
If we stay with that source then we get another hint from what caused the drop in share prices for car manufacturers today.
Shares of automobile companies declined on Monday as many firms reported nil sales in the month of April after a nationwide lockdown kept factories and showrooms shut.
At 10:11 AM, the Nifty Auto index was down 7.33 per cent as compared to 5.1 per cent decline in the Nifty50 index.
Monetary Policy
You will not be surprised to learn that the RBI acted again as the policy Repo Rate is now 4.4% and the Governor gave a summary of other actions in the speech referred to above.
In my statement of March 27, I had indicated that together with the measures announced on March 27, the RBI’s liquidity injection was about 3.2 per cent of GDP since the February 2020 MPC meeting.
Those who follow the ECB will note he announced something rather familiar.
it has been decided to conduct Targeted Long-Term Repo Operations (TLTRO) 2.0 at the policy repo rate for tenors up to three years for a total amount of up to ₹ 50,000 crores, to begin with, in tranches of appropriate sizes.
Oh and as we are looking at India by ECB I am referring to the central bank and not cricket.
If we switch to the money supply data we see that in the fortnight to April 10th the heat was on as M3 grew by 1.2% raising the annual rate of growth to 10.8%. But there was a counterpoint to this as there were heavy withdrawals of demand deposits with fell by 7.8% in a fortnight. We have looked before at the problems of the Indian banking sector and maybe minds were focused on this as the pandemic hit.
Gold
I am switching to this due to its importance in India and gold bugs there may be having a party as they read the Business Standard.
The sharp rise in the prices of gold —which almost doubled over the past one year —has been the only good news for investors at a time when both equities and debt returns have been under pressure.
That price may be a driving factor in this.
India’s gold demand declined by a staggering 36 per cent during the January-March quarter, to hit the lowest quarterly figure in 11 years due to nationwide lockdown that has forced the closure of wholesale and retail showrooms.
Comment
The situation is made worse by the fact that India starts this phase as a poor country. Things are difficult to organise in such a large country as the opening of the Liquor Shops today has shown.
Long queues witnessed outside #LiquorShops in several parts of Chhattisgarh, people defy social distancing norms at many places: Officials ( Press Trust of India)
Also a problem was around before we reached the pandemic phase.
Armies of locusts swarming across continents pose a “severe risk” to India’s agriculture this year, the UN has warned, prompting the authorities to step up vigil, deploy drones to detect their movement and hold talks with Pakistan, the most likely gateway for an invasion by the insects, on ways to minimise the damage. ( Hindustan Times from March)
Now let me give you another Indian spin. The gold issue has several other impacts. No doubt the RBI is calculating the wealth effects from the price gain. However I think of it is another form of money supply as to some extent it has that function there. Also part of the gain is due to another decline in the Rupee which is at 75.6 to the US Dollar. Regular readers will recall it was a symbolic issue when it went through 70. This creates a backwash as it will make people turn to gold even more.
Let me finish with some good news which is that the much lower oil price will be welcome in energy dependent India.
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Notayesmanseconomics's Blog 
Hello Shaun,
India does love its gold . traditional .
I wish them well
forbin
Hi Forbin
Your reply made me check the gold price in Rupees and the Business Standard got somewhat excited I think. However you could easily have made a 50% profit by holding Gold in India. So compared to nearly everything else you would be sitting pretty.
Me too.
India was having a number of problems prior to the virus pandemic, notwithstanding Greta Thunberg and the greenies going ballistic on fast fashion.
But the lockdown decimated the fashion industry in particular in the UK and we heard recently most the big store groups in the UK cancelling their orders in the UK and also in some cases demanding further discounts.
India and China big exporters of clothes and shoes, the minute the demand ceases it was bound to cause significant pain to manufacturers.
As for Gold the Indians were indeed a lover of gold but maybe the pain which they are now suffering through a massive exports drop, has limited the amount of money they can afford to spend on gold.
When you have a global recession its back to the domino affect one fall of the dominoes and you get a chain reaction.
I haven’t got a clue where all this will end up, after the second world war ended and the UK economy owed so much to the US we started to build houses and within 20 years the UK was booming again in both the swinging sixties and 70s.
History is no guarantee however how one can predict the future.
The problem at this moment in time is the pandemic not run its course and there could be further damage to the global economy so forecasts are completely off the table at the moment.
But one last point to make about Gold, I remember the highs somewhere in the 70s if my memory serves me correct and it then proved to be a poor investment for decades to come.
What I have noticed of late is quite a number of adverts in the press and TV persuading people to buy gold, there is always someone ready to jump on a bandwagon when they think they v=can fleece the public into buying something they don’t really understand.
Art is another area where people start to pin their hopes in maintaining and investment but it only takes a change of fashion and even art collectors can take large hits.
Hi Peter
If we start with Gold then sadly retail investors tend to buy towards tops so I guess the TV adverts are hoping to catch that trend. It might be cheap as well to advertise right now.
Your fashion point is a good one. I am certainly no fashion expert but there must be quite a mess. This even starts with past orders as clothing etc must have been on its way here that cannot be sold and is piling up in warehouses. Clothing manufacturers in India must be hoping we return to past habits.
Shaun, why India has a lockdown must have something to do with the autocratic nature of its leader rather than health. The Indians must be just about the least at risk nation, due to their lack of obesity and other western problems especially in their older people. This is doing unwarranted harm to their economy for no good reason.
On a lighter note I am pleased to report that the outlier ‘red’ department in the S West of France has turned green today, obviously the previous colour by numbers guy got the boot.
Incidentally I have studied and can verify as correct a series of graphs of cv-19 deaths in the NHS by day. The shape is absolutely standard bell shaped for any virus. Its coming down just as fast as it went up. BoJo is going to have some serious issues if he tries to extend the lockdown after VE day. The graphs also use ONS/NHS data and demonstrate if cv-19 has been deadly. It looks at deaths by age , sex and with and without cv-19. There is absolutely no difference between the profiles of total deaths including cv-19 and the long term average of total deaths. This virus is not deadly, at the most it is typical of any respiratory virus it tips the older infirm over the edge, but no more than any other respiratory virus.
We have been sold a pup.
But what would have happened if no lockdown had taken place?
We know there was a spike after Germany eased their lockdown and the UK had far more cases.
We managed in the UK without utilizing the new build hospitals but my guess is they would have been fully utilized but for the lockdown.
The Lockdown came later than other lockdowns and the death rate apart from the US going to be one of the highest.
As for China most don’t believe their figures on the epidemic but the lockdown was as tight as it could have been, far tighter than the UK. South Korea managed to reduce their death rates but they were on the front foot with testing and tracing.
Trump was in denial about the virus and it spiraled out of control.
As for India and the other Continents like Africa because its a new disease the scientists really don’t know how it will affect other races of people.
It isn’t surprising the weak succumb more but even healthy people have died of the virus.
Where to start?
OK, USA has 50% of the UK death rate per million population. Its not spiralling out of control in the USA that is a myth perpetuated by the Guardian.
There have been 8 ( eight) States who have not had a lockdown, now a lot of others are removing theirs. Why? Because their excess deaths from cv-19 have never happened. NY and NJ account for 50% of the USA deaths ‘with’ cv-19. Take those two states out of the numbers and the USA death rate is not far off Denmark ( one of the darlings of the lockdown crew). Furthermore the cv-19 deaths in US hospitals are inflated. How do we know that? Easy, each hospital get paid a whopping $39,000 for each patient it puts in ICU with anything that is remotely possibly cv-19. Guess what happens.
Germany. There was no spike of deaths after raising their so-called lockdown. I say so-called because traffic numbers show at least 50% of people were still travelling to work every day. The very small increase was in ‘cases’. And cases are just a function of tests. The more tests you do the more cases you find. The latest estimate is that the number of people infected in Germany is 10, 20, 50 times that recorded. That is good not bad. They probably have got to immunity. The reason why Germany had less deaths was because they have a devolved health system. It was able to deal locally with outbreaks without infectiing all their hospitals and care homes. And crucially German doctors still record deaths properly, if someone dies of a heart attack that is what goes on the form, not ‘associated with cv-19’.
Sweden is performing far better than UK in terms of deaths per million with a much more intelligent approach. Its got a higher death rate than its Nordic neighbours because its BAME population is higher and has much bigger care homes which it admits it did not protect as well as it could.
The UK lockdown started just like all nations after the peak of infection and hospitalisation. The infection had already been in the general population for some time. Then the UK did the worst thing possible, it locked up the healthy who should have got infected, and infected the ill and old , creating hop spots in general hospital wards and care homes. It was and is an unmitigated disaster.
All the stats now say the same thing. The virus followed a predictable bell curve, the lockdown had ZERO effect. The death rate is going down as quickly as it went up.After VE day it will be in low10s /per day.
And the stats also clearly say you have as much chance of dying at your age ( any age) with cv-19 as you have of dying period. You have more chance of being killed in a car accident than with cv-19. Just like the normal age distribution, the chances of dying with cv-19 only start being noticeable for males over 75 and females over 80. To repeat this is no more likely than dying of anything ese even at these ages.
The reason why S Korea, Japan, Thailand, Taiwan etc have low death rates isn’t because they employed track and trace. I know from personal experience nothing like this happened in Thailand or Japan. The reason is that their older people are generally healthy, not obese, and do not use ACE-inhibitors. Also in some nations the sun shines a lot which helps keep the vitD levels up.
In summation, cv-19 is not deadly, it does not kill anyone ( its the body’s immune system that does that), it does not lead to greater deaths than a typically bad flu year, its peaked. The only risk that it might hang around is because of lockdown. Instead of building up a reasonable level of immunity in society lockdown may have suppressed this. The ‘flattening of the sombrero’ for initial death spike to allow extra ICU beds may have been justified, but at the cost of elongating the duration of time to reach a good level of immunity.
And all the money in the world won’t help the production of the first ever coronavirus vaccine, its most probably impossible, just as is a vaccine for another coronavirus, the common cold.
if you have link I’d be interested
“We have been sold a pup.”
Indeed we have.
Boris Johnson’s extended statement about his coronavirus, immediately prior to going into hospital, was strangely, absolutely free from the persistent cough he claimed to have.
When he went into the side room of an NHS ward, he claimed to be still working, yet I can absolutely assure you, his isolation would have afforded him little privacy in terms of sound, and everyone on the ward would have heard precisely what he was saying. So why were all the NHS staff who dealt with the PM forced to sign the Official Secrets Act?
Then, very coincidentally, Johnson gets out of hospital just in time to recuperate enough to be able to attend the birth of his son.
Finally, we are told that doctors had made contigency plans for his death, and that, dramatically, at one point it was 50/50.
Why would doctors make contingency plans? Politicians, perhaps, but doctors? That’s a big, fat, fabrication.
How come he’s so quickly back in place? I;d expect such debilitation as claimed, to take months to recover from, as he’s a fat male in his mid-fifties, Another big fat fabrication?
Incompetence doen’t require explanation, but lies do, which is why tptb want us to believe them incompetent rather than evil, which is what they really are.
Off topic what should the UK do to get the economy moving again and how should it be paid for?
Top economists warn not to go back to austerity and Danny Blanchflower has a say:
https://www.newstatesman.com/politics/economy/2020/05/top-economists-warn-uk-not-repeat-austerity-after-covid-19-crisis
“Top economists warn not to go back to austerity”
you can’t go back to what was never done
The Greeks had austerity – we did not ( we called it that but it was not )
I have no doubt we’ll spend ,spend ,spend and inflate away
Forbin
forbin
I did read the article quite quickly but at least one economist mentioned borrowing is cheap and the borrowing could be inflated away.
However I am not sure that can be done on a global scale, bur I only understand simplistic economics.