D&B Economy Observer: Economy forecast for the month of May

The period of lockdown, global recession and changes in consumer behaviour will determine the pace of economic activities

Real Economy: The Index of Industrial Production (IIP) is expected to have been impacted severely during March 2020 as compared to March 2019. Nationwide lockdown has led to a near halt of all non-essential activities in the industrial sector and supply chains have been significantly disrupted with daily movement of trucks falling to less than 10% of normal levels. Industrial activity is also likely to be impacted during the next two months. Dun & Bradstreet expects the IIP to remain subdued by 0% during Mar 2020.

Price Scenario: Depressed global demand has led to a collapse in the global commodity markets. As per the World Bank, global commodities markets face lasting disruption across many sectors from energy to metals and food. The recovery is expected to be the weakest in history. Low commodity prices and low growth prospects are expected to keep inflation low. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to remain in the range of 5.2%-5.4% and Wholesale Price Inflation (WPI) in the range of 0.0%-0.5% during Apr 2020.

Money & Finance: The government’s large borrowing programme and Foreign Institutional Investor (FII) outflows in the debt markets are exerting upward pressure on yields. However, RBI’s infusion of liquidity in the market, the purchase of long-dated government bonds and selling of short-dated treasury bills under open market operations is expected to keep yields low and largely unchanged compared to the last month. Dun & Bradstreet expects 15-91-day T-Bill yield to average at around 4.2%-4.4% and 10-year G-sec yield at around 6.2%-6.5% during Apr 2020.

External Sector: The rupee is expected to witness strong depreciation pressures due to increased risk aversion, strengthening of the dollar, financial outflows and weak stock markets. Dun & Bradstreet expects the rupee to remain at around 76.55 per US$ during Apr-2020.