(Bloomberg) -- India’s economic activity held steady in February though there were early signs of slowing consumption amid concerns of future growth prospects and hawkish monetary policy. 

The needle on a dial measuring the so-called animal spirits was unchanged from January when it moved left after picking up speed for the last month of 2022, signaling weakening domestic demand is becoming a concern. Eight high-frequency indicators tracked by Bloomberg showed moderating credit growth, weak tax revenues and a rising unemployment rate.

India’s economic growth unexpectedly slowed to 4.4% in the three months to December. Economic expansion may be under pressure as the “full-blown impact” of the Reserve Bank of India’s 250 basis point hike in borrowing cost since May gets transmitted to end-consumers, Crisil Ltd., the local unit of S&P Global Ratings, said in a report. 

The central bank is seen to raise rates further in its next policy review due April 6 after retail inflation breached the central bank’s target for a second straight month in February. The after-effects of the collapse of Silicon Valley Bank as well as troubles at Credit Suisse Group AG, and the risk of heat wave on India’s rural economy could also muddy the outlook ahead. 

Bloomberg’s animal spirits barometer uses a three-month weighted average to smooth out volatility in single-month readings. Here are more details: 

Business Activity

Purchasing managers’ surveys showed activity in India’s dominant services sector climbed at the fastest pace in 12 years. Manufacturing activity expanded at its slowest in four months but remained above the 50-mark. That helped take the composite index to 59 from 57.5 in January.

However, jobs growth was dampened by a lack of confidence in the business environment, said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. “The degree of optimism recorded in February was the lowest for seven months and below the historical trend as some companies doubted demand would remain this resilient.”


Exports fell 8.82% in February from a year ago, while imports dropped 8.21% — the biggest decline in more than two years. 

“Slowing core exports and imports indicate softening global and domestic demand,” said Madhavi Arora, economist with Emkay Global Financial Services Ltd. However, Arora lowered her current account deficit forecast for the fiscal year ending March to 2.5% of the gross domestic product, from 2.6% earlier on robust services exports in the last few months.

Consumer Activity

Liquidity in the banking system is tightening, and credit growth moderated to 15.52% in February, from 16.33% in January, central bank data showed. 

Goods and services tax collections, which help measure consumption in the economy, fell to 1.49 trillion rupees ($18.1 billion) in February from 1.56 trillion rupees in January though it was 12% higher from a year ago. 

New vehicle registrations rose 16% in the month, according to data from the Federation of Automobile Dealers Associations. But passenger vehicle sales growth slowed to 10.9% year-on-year, from 22% rise seen a month ago.

Market Sentiment

Electricity consumption, a widely used proxy to measure demand in the industrial and manufacturing sectors, improved. Peak demand in February rose to 181 gigawatt from 173 gigawatt a month ago amid predictions of hotter weather over the coming months. India’s unemployment rate climbed to 7.45%, from 7.14% a month ago, according to data from the Centre for Monitoring Indian Economy Pvt. 

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--With assistance from Karthikeyan Sundaram.

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