Business Cycle Indicator, leading signal to IIP trend, suggests expansion over January
ZyFin Research's Business Cycle Indicator (BCI) indicates that the Index of Industrial Production (IIP) would continue to expand in January 2015, official data for which would only be available in March 2015. The BCI is a lead indicator to IIP final estimates, and the December reading (corresponding to IIP trend in December) is at 8.5% (year-on-year [YoY]), well above the long-term average of 7.9%. This indicates that the Indian business cycle remains firmly in the recovery phase, and is expected to switch to growth by mid-2015.The ZyFin BCI, a composite index of various indicators impacting the Indian business cycle, is a real-time measure of India's economic health. The timeliness assists in better tracking of the economy, helping economy watchers, policymakers and macro investors. The distinguishing factor between the BCI and other lead economic indicators is the inclusion of consumer sentiment as an input. Consumer sentiment in a demand-driven economy such as India is crucial in assessing possible growth opportunities ahead of time.
Over 2014, the BCI suggested that industrial activity was on a near continuous expansion. There are four key phases in a business cycle: recovery, growth, decline and recession. Based on the BCI trend, India is far along on the recovery phase, and will switch to growth by mid-2015. The recovery is being driven by vastly improved consumer sentiment, as per ZyFin's Consumer Outlook Index, improved governance, as suggested by a rise in revenue receipts and a steep decline in non-plan expenditure, coupled with improving trade statistics and increased productivity in the intermediate sector.
Giving his views on the December number, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, The fact that the Indian Business Cycle is in a recovery phase has been reinforced by the IIP data for November 2014. Based on our estimates, we expect the recovery to get stronger by August, by when the RBI should have implemented a softer interest rate policy. Current dynamics are not in favour of a rate cut, with rising inflation and a weak rupee, coupled with the expected volatility due to the US rate hike later this year.
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