Credit growth in India, GDP of the United States


Every Monday, Mint’s Plain Facts features key data releases to watch out for during the week. The Reserve Bank of India (RBI) will release bimonthly data on commercial bank credit and deposits. Gross domestic product (GDP), merchandise trade and business activity data for the United States will be released. And the impression of the flash composite index of purchasing managers (PMI) of the euro zone will also be closely watched. Here are the big numbers to follow:

  1. Credit growth

The Reserve Bank of India (RBI) will release data on commercial bank credit and deposits for the fortnight ending August 13 this week. The withdrawal of loans was a big disappointment, reflecting weak demand and the uncertain outlook for the economy. Bank credit grew 6.2% in the previous fortnight compared to the same period of the previous year, on a weaker basis. Much of the growth came from retail trade and agri-related activity as the decline in industrial credit continued. This trend is expected to continue, but if signs of industrial credit growth appear, it will be seen as a positive signal by the markets.

With the easing of restrictions, business activity is gradually returning to pre-pandemic levels, giving hope for businesses and consumers to regain their optimism. Still, analysts expect a significant recovery in credit growth only by the end of this fiscal year.

Deposit growth has grown at a faster rate than credit growth during the pandemic, and this trend is also expected to persist for some time.

2. US GDP

Thanks to rising consumer spending and strong government spending, US real GDP grew at an annual rate of 6.5% in the second quarter of 2021. The easing of the brakes resulted in a significant pick-up in activity . Nonetheless, supply and capacity constraints pulled growth below Bloomberg’s consensus estimate of 8.5%. But the two engines of growth, rising consumption and public spending, remain strong and should continue to fuel the US economy. A recent note from Fitch suggests that business investment could add a third step to economic recovery, as companies build capacity to meet growing demand.

The US economy faces two major headwinds: the fast-spreading Delta variant which has led to a resurgence of covid cases and the waning impact of massive government fiscal stimulus that could slow growth. The revised estimate for the second quarter, due Thursday, will give a more meaningful insight into the sustainability of the US economic boom.

3. American PMI

The US Composite PMI flash reading will be released on Monday. Signs of a spike in economic momentum appeared shortly after a record surge in May. The pace of economic growth slowed for the second month in a row with a composite PMI impression of 59.9 in July versus 63.7 in the previous month. The moderation in the production of services after the first reopening of the economy pushed down the overall index. Today, more balanced growth is visible in both industry and services.

But concerns are growing about inflationary pressures and supply constraints, which could dampen economic momentum in the coming months. In addition, the resurgence in infections has dampened corporate optimism, pushing it to the lowest levels seen so far this year. Still, the PMI reading has been in expansionary territory and is expected to stay above the 50 mark.

4. Euro PMI

With the easing of restrictions in July, trade activity in the euro area grew at its fastest monthly pace in more than two decades. Services were behind the acceleration as manufacturing output slowed during the month. Germany experienced the fastest rise among the four largest economies in the euro area, registering a record expansion. The rapid pace of vaccination and surging consumer demand in major euro area economies are fueling hopes for a rapid economic recovery. The impressive strength of the services sector and the high and sustained growth seen in the manufacturing sector are expected to support strong GDP growth in the current quarter. The eurozone composite PMI flash reading, expected on Monday, will tell us if the economy is indeed progressing at the expected pace.

This preliminary reading would reveal whether the strong recovery can be sustained or whether the threat of the Delta variant has dented economic momentum. Investors would be on the lookout for any signal of disruption in production, which could push prices up.

5. American trade

Growing demand for inbound shipments of industrial supplies, including petroleum, saw the United States’ merchandise trade deficit widen to its second-highest level in June. Imports rose 1.5% sequentially to $ 237.4 billion, while exports were flat at 0.2%. As businesses step up spending and investment, demand for goods is expected to rise further in July. Merchandise trade data expected on Friday would tell us how much imports have increased and whether or not the trade gap continues to widen.

While the Delta variant has become a threat around the world, it appears to have had a greater impact on US trading partners than on the United States. Therefore, it is likely that US exports will continue to remain weak even if imports continue to grow, supported by strong domestic demand, thus widening the deficit.

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