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Business Cycle Indicator Signals Rising Economic Activity

Friday, October 16, 2015
By A Business Reporter

However, the domestic economy’s future performance is significantly pegged to demand creation during the festive season, since around 60% of the Indian GDP is fueled by private final consumption expenditure

A lead indicator to the Index of Industrial Production (IIP), the ZyFin Research’s Business Cycle Indicator (BCI),  has risen to 9.1 during October’15 as against 8.4 recorded during same period previous year. The BCI was at 8.6 during September’15. This expansion in BCI is a pre-cursor to an expected rise in IIP in December, official data for which will be available in February, 2016.

An accommodative monetary stance by the RBI along with narrowing deficit ratios and significant capital inflows point towards improving confidence. On the other hand, risks from weakening global growth projections pose a constant threat to India’s export potential while extending volatility to domestic equity and currency markets. Also, the capex cycle is yet to kick off and remains constrained.

The ZyFin Business Cycle Indicator is a forward looking composite indicator of the Indian business cycle with a one-month lead on the Index of Industrial Production (IIP). In current scenario, when world growth remains uncertain, lead indicators like the BCI provide timely signals regarding the future course of local economies. The journey from the bottom of a business cycle to its peak has two parts, recovery and growth. In case of the BCI, a score between 5 till 12 is a reflection of a recovering cycle while growth cycle can be identified once the score breaches 12. Data analysts usually take a three month moving average of the BCI scores to comment on evolving trends.

The uptick in the BCI establishes improving job prospects, easing borrowing costs, falling input prices and rising capital inflows in the domestic economy. Going forward, anticipation of rise in consumption expenditure during the festive quarter of Oct-Dec is likely to augment domestic economic activity further. The ZyFin Research’s Consumer Outlook Index inched up to 46.9 during Sept, 2015 reporting 3.7% gain over Sept, 2014 on recovering consumption outlook marked by the festive cheer. However, for sustained growth it is vital to restructure the economy through growth friendly tax norms, labour market reforms, better debt recovery practices, higher public investment in infrastructure and rationalizing of subsidies.

Giving his views on Business Cycle Indicator (BCI) for the month of September 2015,Debopam Chaudhuri, Chief Economist, ZyFin Research says, the “Volatile BCI trend observed over the past few months reflect an unsteady recovery within Indian economy. The domestic economy’s future performance is significantly pegged to demand creation during the festive season, since around 60% of the Indian GDP is fueled by private final consumption expenditure. With inflation falling in line and loans expected to get cheaper, Indian consumers should open up their purse strings this year, after a long three year hiatus from discretionary spending. Interestingly, data on consumer sentiment is signaling a rise in demand.”

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