India
Contraction in India April Manufacturing PMI Steepest among Top 10 Economies
The manufacturing sector accounts for just one fifth of the global economy and its share is shrinking further in developed countries. Yet, the investing community spends much time on assessing the health of the sector. The manufacturing sector, being at the forefront of economic activity, provides the direction in which the overall economy will go. This explains why the manufacturing sector grabs the attention of the investor community.
The business surveys on the manufacturing sector have often helped in providing first reliable signals of turning points in the economy. One such key indicator is the manufacturing PMI which shows what the participating purchasing managers think about future capex, job creation and overall demand of goods.
A steep contraction in the latest manufacturing PMI numbers for April wasn’t surprising given the prevalent worldwide lockdown to tackle COVID-19 pandemic. However, a contraction of 20-30% versus a contraction of 50% should be looked upon separately.
While among the major economies, the manufacturing PMI numbers have contracted for all. However, the shrinkage of almost 50% in India’s April manufacturing PMI was steepest among the top 10 economies. This shows the damage caused by the lockdown has far deeper consequences on the Indian economy than its developed counterparts.
COVID-19: Developed Countries to Absorb Economic Shock Sooner than Developing Nations
With a rapid surge in the number of cases and mounting death toll, the coronavirus pandemic is wreaking havoc across the globe. So far, COVID-19 has claimed more than 1,25,000+ lives and has infected over 2 million people in more than 200 countries and territories around the world.
The death toll and the number of people infected by COVID-19 shows that the developed nations are the worst affected compared with the developing countries. The US led the number of casualties from Coronavirus, followed by Italy, Spain, France and the UK. These 5 countries constituted nearly 3/4th of the total number of deaths due to Coronavirus.
The rapid spread of Covid-19 has forced the governments around the world to announce Lockdowns, which has not only impacted the lives of people but also halted the overall global growth. The closure of plants and operations announced by companies from almost all the industries led to a short-term collapse in the global output.
Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF) has recently said that global growth will turn “sharply negative” in 2020, as COVID-19 has disrupted the world’s social and economic order “at lightning speed and on a scale that we have not seen in living memory”.
Though the developing countries have not witnessed major casualties, the economic shock triggered by COVID-19 will have devastating impact on both the formal and informal sectors of the economy.
On the other hand, the developed countries, with their financial might, are better placed to absorb the economic shock compared to the developing economies.
Heckyl’s Analysis of News Sentiment around Economic Indicators has also shown that the Developing Countries are most vulnerable to Economic shock than the Developed Countries.
India, Bangladesh, Indonesia and Philippines have recorded a downtrend in the Economic News Sentiment (200-DMA) after a spike in the number of coronavirus cases in March’2020 and subsequent announcement of Lockdowns.
On the contrary, the US has shown an improvement in its Economic News Sentiment helped by an announcement of Rate Cut and Liquidity Measures by the Fed along with USD 2 Trillion stimulus plan unveiled by the US government to cope up with the impact of the coronavirus crisis.
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Arun Jaitley may not have touched upon specific industry or sectors in his latest speech but laid a foundation or stepping stone for the future to unleash India Inc. Jaitley proposed numerous measures related to tax issues, ease of doing business in India, promote start-ups and SMEs, laws to curtail black money, additional funds for infrastructure and extension of social security benefits to the poor people of the country.
For common man, the Finance Minister delivered some goodies but not enough to rejoice them. Direct tax benefits like Increase in medical reimbursements, hike in limit under Section 80CCD by Rs 50000 and higher exemptions on travel allowance will partly get offset by increase in service tax rate from 12.36 percent to 14.28 percent. Read the rest of this entry »
