Asia’s third-largest economy, India, could rebound this year on signs of a sharp pickup in business activity in January. Consumer demand in the country still remains subdued.
According to a gauge measuring so-called animal spirits, activity has accelerated for a second straight month. Most of the eight high-frequency indicators tracked by Bloomberg News held their ground last month.
“Animal spirits” is a term coined by British economist John Maynard Keynes. It refers to investors’ confidence in taking action, and the gauge uses the three-month weighted average to smooth out volatility in the single-month readings.
Signs that the economy has put the worst behind it allowed the central bank to ease its monetary policy. The government has widened budget deficit goals to spur economic growth, which is expected to be the weakest in more than a decade this year.
The Markit India Services PMI index climbed to 55.5 in January, which is the highest in seven years. That, together with an improved showing in the manufacturing purchasing managers’ survey, helped push the composite index higher to 56.3. A reading above 50 means expansion.
The country’s improvement in growth was accompanied by stronger inflationary pressures, according to the PMI surveys, with input costs rising by the most since February 2013, and output price inflation growing to a near two-year high.
Meanwhile, exports dropped 1.7 percent in January from a year ago, mainly due to falling shipments of gems and jewelry, along with engineering goods. Consumer sentiment worsened to an almost five-year low, and industrial production contracted 0.3 percent in December from a year ago, led by weak manufacturing activity in the automobile sector. At the same time, other components on the production side, which are mining and electricity, grew at a healthy clip.
The index of eight core infrastructure industries has also showed positive signs, with activity rebounding in December after four months of contraction.
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