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As more and more states are easing lockdowns and mobility restrictions, early green shoots of an economic recovery can be seen, a weekly report by research agency QuantEco indicates shows.

After a cumulative contraction of 45% over April and May, the economy looks well placed to reverse the trend in June-July, the report said.

Third weekly expansion

The ‘Daily Activity and Recovery Tracker’ (DART) of the agency has detected a “third consecutive weekly expansion in economic activity further cementing the turnaround last week.”

On a week-on-week basis, the index rose by 12.4% compared to the previous week’s change of 5.6%.

11 weeks of contraction

For 11 weeks from  March 7, the tracker observed continuous contraction in economic activity before the curve flattened out and began to rise.

“In the week gone by, the recovery was broad based, with the exception of rural employment rate that ticked higher after a short-lived reprieve last week,” said Yuvika Singhal, economist with QuantEco.

Recover lower than pre-Covid levels

However, the recovery indications are just too initial, with the index about 30% lower than the pre-Covid levels. It was overshot in February-March this year before the economy slumped again due to the second wave of the infection.

Mobility indicators showed increased activity. “Railway passenger movement and online restaurant searches recorded strong traction as ebbing of Covid infections backs consumer confidence and commencement of gradual unlocking,” observed the report.

Urban revival

“The DART index indicates that normalisation in economic activity may be well underway at least in the urban economy. Looking ahead, we remain confident that as the current wave fades and vaccinations pick up, sequential growth recovery could look better Q3 FY22 onwards amidst tailwinds from global growth recovery and supportive fiscal and monetary policies,” the report noted.

However, unemployment concerns remained high. With May clocking an average unemployment rate of 11.90% (urban rate 14.73%, rural 10.63%), a considerable jump from 7.97% in April (urban rate 9.78%, rural 7.13%), there is not much chance of jobs being restored in a hurry even if the economic activity gradually picks up.

Unemployment

The 30-day moving average unemployment rate in the country as measured by the CMIE stood at 13% on June 7. While the urban rate was 15.7%, the rural rate was 11.8%.

While the second Covid wave has compelled most rating agencies and organisations to pare down India’s growth possibilities to around 10% from the earlier 12-12.5% levels, many are looking to a good monsoon to lift the rural economy and aggregate demand in the rural sector.

U-shaped

While in January-February, pundits were predicting a V-shape recovery, the prediction now is about a U-shape recovery in August-September.

Unlike a V-shape recovery, the U-shape recovery takes time as the economy makes a gradual turn upwards as indicated by the shape of the letter U.