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Wednesday, April 14, 2021

Consumer confidence at record low in July; real GDP likely to contract by 5.8% in FY21: RBI survey

The future expectations index charted back into the positive territory, indicating signs of recovery for the year ahead, the survey said.

By: ENS Economic Bureau | Mumbai |
August 8, 2020 1:42:19 am
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Consumer confidence in the country plummeted to a historic low in July 2020, mirroring the “extremely weak state” of the economy hit by the pandemic.

The current situation index plunged to an all-time low of 53.8 in July when compared with the index one year ago, as against 63.7 in May this year, according to the RBI’s latest consumer confidence survey. However, the future expectations index (FEI) charted back into the positive territory, indicating signs of recovery for the year ahead, the RBI survey said.

FEI improved to 105.4 for July from 97.9 in May, indicating that the situation could improve next year at the same time. The RBI conducted the surveys when the economy was facing rough weather amid lockdown, closure of factories and layoffs in the wake of Covid-19 pandemic.

According to the RBI survey, consumer perception of the prevailing economic situation, employment scenario and own income was significantly lower than that in May 2020. “Respondents were, however, somewhat optimistic about these parameters for the coming year vis-a-vis the previous survey round,” it said.

The RBI said most respondents reported reduction in discretionary spending though their overall spending increased during the last one year. They do not expect to increase non-essential spending in the coming year as well, it said. “Perceptions and expectations on general economic situation, employment scenario, overall price situation and own income and spending have been obtained from 5,342 households across cities,” the RBI said.

The RBI’s survey of professional forecasters said real GDP is likely to contract by 5.8 per cent in 2020-21. Further, households’ median inflation perception increased by 60 basis points in July 2020 as compared with the May 2020 survey round, another RBI survey on inflation said. On Thursday, the RBI kept policy rates unchanged, citing the “uncertainty surrounding the inflation outlook and taking into consideration the extremely weak state of the economy”.

Real gross domestic product (GDP) is likely to contract by 5.8 per cent in 2020-21 but it is expected to recover next year, when it is likely to grow by 7.4 per cent, according to the RBI, which has been conducting the Survey of Professional Forecasters (SPF).

The survey said real private final consumption expenditure is likely to contract 6 per cent during 2020-21 but likely to expand by 8.0 per cent during 2021-22. “Forecasters have assigned higher probability to real GDP growth lying between (-)6.0 to (-)5.1 per cent in 2020-21. For 2021-22, highest probability has been assigned to GDP growth lying between 7.0-7.4 per cent,” it said.

As per RBI’s households’ inflation expectations survey, inflation expectations for both three-month and one-year horizons increased by 10 basis points each, over the previous round.

The RBI said households’ expectations on price changes at aggregate level are closely aligned with those of food products and cost of services.

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