Tentative signs of recovery

2019 was truly an annus horribilis for India’s economy but there are green shoots of a recovery in the data from the very end of the year. Industrial production growth jumped in November. Meanwhile, growth in new passenger vehicle sales is close to returning to positive territory, having slumped by 30% y/y in the middle of 2019. And soft surveys such as the manufacturing and services PMIs rose to their highest in several months in December. These are only tentative signs. But we think the economy will gradually build momentum over the coming months as past policy loosening takes effect. If we are right that this adds to upward pressure on core inflation, it would set the stage for the RBI to switch to tightening mode later this year.