The U.S. economy grew rapidly in the second quarter and exceeded its pre-pandemic size, but the outlook has suddenly turned cloudier due to the fast-spreading Delta coronavirus variant.
Virus cases are rising again, particularly in parts of the country where vaccination rates remain low. The Centers for Disease Control and Prevention this week recommended that vaccinated people resume masking indoors in places with high or substantial transmission of coronavirus, leading some local governments and businesses to reinstate restrictions on activity.
for instance, said it would require workers and customers to wear masks in more than half of its retail stores, and Google delayed its return-to-the-office plans until mid-October. Several private and public employers have said they would require workers to be vaccinated or regularly tested for infection.
All of this has raised uncertainty about whether consumers and workers will retreat again, as they did last year. For now, forecasters generally don’t expect the spread of Delta to make a major dent in the U.S. economy, in part because businesses and consumers have learned to adapt to each wave of the pandemic.
Still, the Delta variant’s fast spread, initially in many emerging nations abroad, shows the U.S. economy remains vulnerable as long as the pandemic persists.
“What you worry about is how many disruptions are we going to continually have to deal with?” said
chief economist at Grant Thornton. “In the U.S. economy, there is some downside risk that some people don’t go out and don’t go out to eat as much as they did, they don’t travel as much.”
Gross domestic product, the broadest measure of U.S. goods and services produced, grew at a 6.5% annual rate in the second quarter, up slightly from a 6.3% growth rate in the first three months of the year, the Commerce Department said Thursday. The reading was below economists’ estimates but pushed the size of the economy above its pre-pandemic level, a milestone that underscores the speed of the recovery that began in May 2020.
The strong spring growth was fueled by trillions of dollars in fiscal stimulus and consumer spending that jumped at an 11.8% annual rate as more people received vaccinations and businesses reopened. U.S. payrolls continued to grow during the quarter, expanding the labor market by an average of nearly 600,000 a month. More recently, initial jobless claims last week resumed their decline.
Economists see two main ways the spread of the Delta variant could derail the robust recovery. First, some state and local governments could reimpose restrictions on businesses. Second, consumers could curtail spending on travel, dining out and moviegoing out of heightened cautiousness.
So far, new restrictions have been limited in scope, but the list is growing. They include the reinstatement of indoor-mask rules in some localities such as Los Angeles County.
Walt Disney Co.
said it will require visitors to Walt Disney World in Orlando, Fla., and Disneyland Resort in Anaheim, Calif., to wear masks indoors, effective Friday. Three music clubs in New Orleans—including Tipitinas—said they would require people attending shows to provide proof of vaccination or a negative Covid-19 test for entry, also effective Friday.
Americans don’t appear to be retreating into their homes as the Delta variant spreads. Flight volumes and hotel-occupancy rates continue to rise, according to an analysis by Jefferies. Public-transit usage is also gaining ground, though it is down compared with pre-pandemic levels, Jefferies said.
The increasing level of vaccinations in the U.S. has made people more likely to keep working and spending money despite the rise in cases.
“I really don’t expect anything like we saw in the spring of last year,” said
executive director at forecasting firm
“Going forward we’ll just see how high the case count gets and how nervous some people get.”
Anheuser-Busch InBev SA
said it was grappling with how to mitigate a range of higher costs to protect profitability, though its sales reached pre-pandemic levels in the second quarter. It said barley and freight had gotten more expensive, and that greater demand for cans in the U.S. had forced it to import them from elsewhere, further adding to its costs.
Shipping bottlenecks and commodities costs are helping drive inflation in the U.S. WSJ visits a patio-furniture factory in China to see why refurbishing your backyard could be pricier this year. Photo: Patrick Fok
The Wall Street Journal Interactive Edition
Similarly, Nescafe coffee maker
warned that costs for transportation, commodities and packaging were all rising, with little indication as to when the current bout of inflation would end.
Elsewhere, logjams at seaports around the world have left toy companies such as
scrambling already to ensure they will have sufficient supplies for the holiday shopping season. Toy-industry veterans say this year’s disruption is worse than when Covid-19 first struck last year, temporarily shutting many ports, factories and stores. Ocean freight bottlenecks have led to long delays for shipping from China and rates that are far higher than usual. Toy makers are also grappling with rising costs for materials and labor, leading some to raise prices.
Still, many analysts expect these supply constraints and bottlenecks to ease. Demand—particularly for long-lasting goods that consumers snatched up earlier in the pandemic—is starting to moderate. As a result, firms have more time to work through order backlogs and increase production. Many economists say inventory replenishment should boost output in the coming quarters.
A strong comeback in consumer demand this spring has been a double-edged sword for many businesses. Sales have boomed, allowing companies to recover losses, but growth has been so rapid, some have found it difficult to keep pace.
When many people got vaccinated earlier this year, they started flooding into Factory Hair Seattle to get their hair cut, said
the salon’s owner. “It just exploded,” she said. “I’ve been through a recession and seen the economy come back, but never anything like this.”
As business soared, some stylists became mentally fatigued, and some said they couldn’t take any more clients. Ms. Rivera added two stylists to her staff of six to try to keep up with the onslaught of customers.
The salon also raised prices, in part to slow growth a bit to a more manageable level, said Ms. Rivera. Haircuts, which include a shampoo and a blowout, cost an average of $60 to $70, up by $5 from a year ago, she said.
Consumer prices rose 5.4% in June from a year before, the fastest pace since 2008, the Labor Department reported. As overall economic growth eases, price increases could cool as well. Economists surveyed by The Wall Street Journal in July see inflation measured by the department’s consumer-price index easing later this year, to 4.1% in December from a year earlier, and 2.5% by the end of 2022.
Overall, economists expect growth to remain strong, barring a sharp re-emergence of virus cases and related restrictions and fear. Respondents to the WSJ survey forecast the economy to grow 7% in the third quarter before drifting down to a 3.3% rate in the second quarter of 2022.
When the pandemic hit, sales at flatware maker Sherrill Manufacturing Inc. began doubling.
“The restaurants all shut down, so people were cooking for themselves, many of whom had never cooked anything beyond mac and cheese,” said
Sherrill’s chief executive. “They wanted something nicer on their table.”
Sales have continued to grow solidly but have cooled from the red-hot pace logged throughout much of the pandemic. Mr. Owens said the spending boost from government stimulus money has faded, and people are shifting their spending toward services such as restaurants amid reopenings.
“That has certainly created less of a demand for people sitting at home going, ‘Our plates are kind of old and I don’t really like them,’ or ‘Our flatware is dated,’” he said.
Still, Mr. Owens expects sales to remain strong. His company manufactures flatware in the U.S, and he said many individuals are increasingly interested in buying American-made products because of the limited availability of many imported goods during the pandemic.
At Factory Hair Seattle, business just recently started to level off, though the salon remains busy. The salon is seeing an influx of men coming in to tidy up—but still maintain—their longer pandemic hair, Ms. Rivera said.
“They’re like, ‘I’m still not going to be going back into my office until September, October,’ ” she said. “They don’t want to go back to this short, high-and-tight corporate look.”
Write to Sarah Chaney Cambon at firstname.lastname@example.org
Charting the Global Economy: Retail Sales Stumble in UK, China – BNN
(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
The global economy is still feeling the weight of Covid-19, which is complicating recovery efforts and sparking inflation.
Retail sales in the U.K. and China continued a stretch of weakness, while those in the U.S. unexpectedly rose. Inflation remains elevated in most parts of the world, and soaring food prices are especially hurting populations in emerging markets.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Covid-19 still isn’t done hobbling the global economy. From the U.S. to China and Germany, the latest data are flagging an economic slowdown as the new form of the coronavirus hits spending just as supply chain snarl ups threaten to keep inflation elevated. Both the world’s two largest economies are feeling a squeeze.
Companies around the world from noodle makers to semiconductor giants are spending on new plants and machinery in ways they haven’t done for years. Globally, corporate capital expenditure, or capex, will jump by 13% this year, according to S&P Global Ratings, with growth in all regions and broad sectors — especially in semiconductors, retail, software and transportation.
The global economy is expected to undergo its fastest recovery in almost five decades this year, but deepening inequities between advanced and developing countries threaten to undermine this, the United Nations warned.
Prices paid by U.S. consumers rose in August by less than forecast, snapping a string of hefty gains. The data offered some comfort for “team transitory” –- those at the Federal Reserve and elsewhere who say price spikes caused by the economy’s reopening will soon abate.
Retail sales rose unexpectedly in August as a pickup in purchases across most categories more than offset weakness at auto dealers, showing resilient consumer demand for merchandise. The report showed firmer receipts at online retailers, general merchandise stores, furniture outlets and grocery stores.
U.K. retail sales fell unexpectedly for a fourth month in August, the longest stretch of declines in at least 25 years, raising concerns about the economic recovery as a resurgence of coronavirus cases and supply shortages take a toll.
U.K. inflation surged more than expected to the strongest pace in more than nine years, prompting investors to anticipate a sharper increase in interest rates in 2022. Consumer prices jumped 3.2% in August from a year ago, the most since March 2012, the Office for National Statistics said on Wednesday.
France’s sooner-than-expected economic recovery from the slump during the Covid-19 pandemic is reviving deep problems in the labor market that have long hobbled growth, the country’s central bank said.
China’s economy took a knock in August from stringent virus controls and tight curbs on property, fueling concerns about the global recovery as countries battle to get delta outbreaks under control. Retail sales growth slowed to 2.5% from a year ago.
Australia’s fiscal coffers are under assault on two fronts as its largest export goes into free-fall while the nation’s biggest cities and swathes of the east coast are under virus lockdown, driving up emergency spending.
Global food prices were up 33% in August from a year earlier with vegetable oil, grains and meat on the rise, data from the United Nations Food and Agriculture Organization show. It’s unlikely to get better as extreme weather, soaring freight and fertilizer costs, shipping bottlenecks and labor shortages compound the problem.
©2021 Bloomberg L.P.
Remarks by President Biden on the Economy – The White House
2:00 P.M. EDT
THE PRESIDENT: Good afternoon. I want to start by thanking the House committees for working hard this week to advance critical components of the economic plan that I’ve put before the Congress.
I know we still have a long way to go, but I’m confident that Congress will deliver to my desk both the bipartisan physical infrastructure plan and the Build Back Better plan that I have proposed.
And I’ve said many times before: I believe we’re at an inflection point in this country — one of those moments where the decisions we’re about to make can change — literally change the trajectory of our nation for years and possibly decades to come.
Each inflection point in this nation’s history represents a fundamental choice. I believe that America, at this moment, is facing such a choice. And the choice is this: Are we going to continue with an economy where the overwhelming share of the benefits go to big corporations and the very wealthy? Or are we going to take this moment right now to set this country on a new path — one that invests in this nation; creates real, sustained economic growth; and that benefits everyone, including working people and middle-class folks?
That’s something we haven’t realized in this country for decades.
The data — (clears throat) — excuse me. The data is absolutely clear. Over the past 40 years, the wealthy have gotten wealthier, and too many corporations have lost their sense of responsibility to their workers, their communities, and the country.
Just look at the facts. CEOs used to make about 20 times the average worker in the company that they ran. Today, they make more than 350 times what the average worker in their corporation makes.
Since the pandemic began, billionaires have seen their wealth go up by $1.8 trillion. That is, everyone who was a billionaire before the pandemic began, the total accumulated wealth beyond the billions they already had has gone up by $1.8 trillion. Simply not fair.
And it’s — how is it possible that 55 of the largest corporations in this country paid zero dollars in federal income taxes? They made over $40 billion in the year 2020, and they’ve paid zero. Think about that. Zero dollars in federal taxes on $40 billion in profits.
How is it possible that the wealthiest billionaires
in the country can entirely escape paying income tax on what they’ve made?
How is it possible for millionaires and billionaires that can pay a lower rate of tax than teachers, firefighters, or law enforcement officers?
Here’s the simple truth. For a long time, this economy has worked great for those at the very top, while ordinary, hardworking Americans — the people who built this country — have been basically cut out of the deal.
And I’ve said this from the time I announced I was going to run: I believe this is a moment of potentially great change. This is our moment to deal working people back into the economy. This is our moment to prove to the American people that their government works for them, not just for the big corporations and those at the very top.
When I was sworn in as President, the nation was struggling to pull out of the worst economic crisis since the Great Depression. Job growth was anemic, with just over 60,000 new jobs per month in the three months before I was sworn in.
Then we went to work and passed the American Rescue Plan back in March. And it worked. It’s still working.
Over the last three months, we’ve been creating, on average, 750,000 new jobs per month. Our economy is growing at the fastest rate we’ve seen in nearly 40 years.
Our recovery is unique in the world. We’re the only developed country in the world whose economy is now bigger than it was before the pandemic.
While this is all good news, I know many Americans are still struggling to make it through each and every day.
For too many, it’s harder and harder to pay the bills — food, gas, rent, healthcare. I get it. We still have a long way to go to get the economy where it needs to be.
As I’ve said for a long time: Coming out of this economic crisis as deep as the one we were in was never going to be easy. But we’re doing it, and we can continue to do it.
COVID, supply chain issues, and bad actors seeking to profit off the pandemic are all contributing to the challenges we’re facing.
That’s why I’ve made getting COVID under control my top priority from my first day as President. Everything — everything, from our public health to our economy, depends on this.
We made enormous progress against the virus through the summer, and now we’ve put ourselves in a strong position to battle this Delta variant. That’s why the actions I proposed on vaccines last week are so critical: from requiring federal workers to get vaccinated; requiring healthcare workers to be vaccinated; requiring employers with over 100 employees to institute vaccine and/or test protocols, calling on — for them to be able to know what their employers — their employees are doing before they walk through the door; calling for vaccine or test requirements to enter big venues; and a whole series of steps I proposed to protect our kids in schools.
Wall Street firms have analyzed the impact of these plans, and they’re projecting that these new requirements will help 12 million more Americans get vaccinated, which will help more businesses stay open and more Americans back to work.
The data shows that the overwhelming majority of Americans agree with my proposal. That’s — there’s no surprise, given that 76 percent of American adults have already gotten at least one shot.
But — but we’re facing a lot of pushback, especially from some of the Republican governors. The governors of Florida and Texas — they’re doing everything they can to undermine the lifesaving requirements that I’ve proposed.
And some of the same governors attacking me are in states with some the strictest vaccine mandates for children attending school in the entire country.
For example, in Mississippi, children are required to be vaccinated against measles, mumps, rubella, chickenpox, hepatitis B, polio, tetanus, and more. These are state requirements.
But in the midst of a pandemic that has already taken over 660,000 lives, I propose a requirement for COVID vaccines, and the governor of that state calls it, quote, a “tyrannical-type move”? A “tyrannical-type move”?
This is the worst kind of politics because it’s putting the lives of citizens of their states, especially children, at risk. And I refuse to give in to it.
These policies are what the science tells us we need to do. They’re going to save lives. And they’ll protect our economic recovery as well, and allow the economy to continue to grow.
We’re also going after the bad actors and pandemic profiteers in our economy. There’s a lot of evidence that gas prices should be going down, but they haven’t. We’ll be taking a close look at that.
Taxpayers in this country also have paid for extraordinary effort to keep our country going over the past year or so.
Unlike the last administration, which resisted oversight and allowed taxpayers to be victimized by fraud, we’re working hard to protect vulnerable Americans from having their identities stolen — as a consequence of their unemployment check stolen as well.
And we’re going offer organized criminal — we’re going to go after organized criminals that defraud America or misuse COVID funds.
Look, we’re also taking a closer look at places in our economy where fewer and fewer corporate giants are controlling more and more of the marketplace in the area that they work.
Just look at agriculture and the food industry. A very small number of giant corporations now dominate the market, which gives them the ability to drive up prices because they face so little competition.
As we work to build healthier competition in our economy and crack down on bad actors, the American Rescue Plan, which we passed in March, is still working to give hardworking Americans — hardworking people some relief.
One of the best examples of that relief is the expansion of the Child Tax Credit, which, in effect, is essentially a historic tax cut for families with children.
Just yesterday, 39 million working moms and dads got their direct payment. That money is going to help cover groceries, the mortgage, new pairs of shoes — all the things that kids need. It’s a tax cut for working families.
So, we’re working to provide as much relief as we can right now to American families. But here’s the truth: Yes, the pandemic has caused a lot of economic problems in the country, but the fact is our economy faced challenges long before this pandemic struck. Working people were struggling to make it long before the pandemic arrived.
Big corporations and the very wealthy were doing very well before the pandemic. That’s why I’ve said — starting back in my campaign for president — that it’s not enough just to build back; we have to build back better than before. And that’s how it all begins.
Big corporations and the super wealthy have to start paying their fair share of taxes. It’s long overdue.
I’m not out to punish anyone. I’m a capitalist. If you can make a million or a billion dollars, that’s great. God bless you. All I’m asking is you pay your fair share. Pay your fair share just like middle-class folks do. But that isn’t happening now.
Today, in this country, right now, the top 1 percent, for example, evade an estimated $160 billion in taxes that they owe each year. Not new taxes, taxes that they owe.
And the way it works is this: If you’re a typical American — like I suspect most of the press people sitting in front of me here — you pay your taxes. Why? Because you get a W-2 form. It comes in the mail every year.
The IRS gets that information as well. Your taxes get deducted from your paycheck, and you pay what is owed beyond that. That’s why about 99 percent of working people pay the taxes they owe.
But that’s not how it works for people with tens of millions of dollars. They play by a different set of rules. And they’re often not employees themselves, so the IRS can’t see what they make and can’t tell if they’re cheating.
That’s how many of the top 1 percent get away with paying virtually nothing. It’s estimated by serious economists that that number is about $160 billion collectively owed each year that doesn’t get paid. It’s not an even playing field. My plan would help solve that. For example, it would give the IRS the resources it needs to keep up with the lawyers and accountants in the super — of the super-wealthy.
It would ask just for two pieces of information from the banks of these folks: that amounts — the amounts that come into their bank accounts and what amounts go out of their bank accounts, so that the wealthy can no longer hide what they’re making and they can finally begin to pay their fair share of what they owe.
That isn’t about raising their taxes. It’s about the super-wealthy finally beginning to pay what they owe — what the existing tax code calls for — just like hardworking Americans do all over this country every Tax Day.
Look — and like I said just a few minutes ago, 55 of the most profitable corporations in America paid zero in federal income taxes on what amounted to $40 billion in profit. Not a penny. That’s not right. And my economic plan will change that. Not punish anybody, just make them pay their fair share.
But my Republican friends in Congress don’t want to change the law. So, what are they doing? They’re attacking me and my plan — which is fine. But if we’re going to have a debate, let’s have an honest debate.
My Republican friends are attacking my plan, saying it’s “big spending.” Let me remind you, these are the same folks who just four years ago passed the Trump tax cut totaling almost $2 trillion in tax cuts –- a giant giveaway to the largest corporations and the top 1 percent. And listen to this: Almost none of that $2 trillion tax cut was paid for. It just ballooned the federal deficit.
In fact, the unpa- — unpaid bills ranked up — racked up by the last administration are projected to increase the national debt by more than $8 trillion over time.
What I’m proposing is totally different from that approach for three reasons:
First, my plan is paid for. It’s fiscally responsible, because our investments are paid for that by making sure that corporations and the wealthy Americans pay their fair share.
Second, we’re not going to raise taxes on anyone making under $400,000. That’s a lot of money. Some of my liberal friends are saying it should be lower than that. But only corporations and people making over $400,000 a year are going to pay any additional tax.
And third, not only will no one making under $400,000 see their taxes go up, the middle class are going to going to get some tax cuts — some breaks.
My plan benefits ordinary Americans, not those at the top who don’t need the help. It’s a historic middle-class tax cut, cutting taxes for over 50 million families.
My Republican friends are making a different choice though. They’d rather protect the tax breaks of those at the very top than give tax breaks to working families. It’s that simple.
But let me ask you this: Where is it written that all the tax breaks in the American tax code go to corporations and the very top? I think it’s enough. I’m tired of it.
For me, it’s pretty simple: It’s about time working people got the tax breaks in this country. That’s what my plan does.
But here’s what it also does: By asking big corporations and the very wealthy to pay their fair share, it makes it possible to invest in America, to invest in the American people.
According to leading economists — forecasters like Moody’s and major international financial institutions — my plan will create — make us — create jobs, make us more competitive, and grow our economy and lessen — lessen, not increase — inflationary pressure.
I don’t know if it’s been handed out today, but, by the way, 15 Nobel laureates in economics released a letter yesterday arguing that exame [sic] — that exact same point.
They said, and I quote — and this is from 15 Nobel laureates in economics — quote, “Because this agenda…” — the one I’m talking about, mine — “Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease long-term inflationary pressures.” It will ease it.
Let me highlight just a few provisions of my plan. I know this is long, and I apologize, but it’s important, I think.
My plan lowers the cost of daycare and childcare and eldercare for families and [has] the added benefit of allowing millions of people, mostly women — who are not able to go back to work because of very young family members or elderly people they’re taking care of — allow them to go back to work. It’s estimated in the millions that can’t go back.
It lowers healthcare premiums for millions of families. It lowers prescription drug costs by giving Medicare the power to negotiate lower drug prices. And it strengthens Medicare by adding dental, vision, and hearing coverage for — if you’re on Medicare.
It also extends the tax cut for families with kids that we passed in the American Rescue Plan in March.
All of this will mean thousands of dollars in savings for the average American family on some of the toughest and most important bills they have to pay every month.
My Republican friends talk a lot about inflation, but if you want to talk about actually lowering the cost of living for people in this country, my plan does just that.
By strengthening the capacity of our economy, it will also reduce inflationary pressures over the long run.
Here’s something else my plan does: It confronts the crisis of extreme weather events that we’re seeing all around us and around the world — but just here in America. We see it everywhere. We know it’s real.
In just the past few weeks — and there’s more to come — I’ve seen the destruction of hurricanes in Louisiana, where winds got up to a hundred- — gusts of 179 miles an hour; the deadly toll from flooding in New York, where 20 inches of rain, and New Jersey, more than 11 inches of rain in some areas.
More than 5 million acres of our lands and communities have burned to the ground in wildfires just this year alone. That’s more than the size of the entire state of New Jersey burned to the ground. When I was out in California, I flew over some of these areas.
In addition, there’s a severe drought in the West and the Midwest.
There’s a blinking code red out there for the nation. We can’t wait to act.
Extreme weather, just last year, cost the American public $99 billion in damage — $99 billion in damage last year. And unfortunately, we’re likely to break that record this year.
And the evidence is overwhelming that every dollar we invest in resilience saves six dollars down the road — when the next fire doesn’t spread as widely or the power station holds up against the storm.
We need to rebuild with resilience — with resilience in mind — so roads are built higher; levees are built more — made more strong — stronger; transmission lines are better protected, and so much more.
You know, I hope we’re past debating climate change in this country. Now we have to act, and we have to act fast. And my plan does that.
Let me end with this. This pandemic has been God-awful
for so many reasons: the lost lives — as I said, over 660,000; the jobs, the businesses lost; the lost time in school for our kids.
But it does present us with an opportunity: We can build an economy that gives working people a fair shot this time. We can restore some sanity and fairness to our tax code. We can make the investments that we know are long overdue in this nation.
That’s exactly what my bipartisan infrastructure plan does — I should say, our bipartisan infrastructure plan does: investments in roads, bridges, highways; clean water in every home and every school; universal broadband; quality and affordable places for families to live.
And we can invest in our people — giving our families a little help with their toughest expenses, like daycare, childcare, eldercare, prescription drugs, healthcare, preparing our young people to compete against any country in the world with preschool and community college.
We can confront this crisis of extreme weather and climate change, and not only protect our communities but create new opportunities, new industries, and new jobs.
In short, this is an opportunity to be the nation we know we can be — a nation where all of us — all of us, not just those at the top — are getting a share of the benefits of a growing economy in the years ahead.
Let’s not squander this moment trying to preserve an economy that hasn’t worked too well for Americans for a long time.
Let’s not look backward, just trying to rebuild what we had. Let’s look forward, together, as one America — not to build back, but to build back better.
Thank you all very much. And God bless you all. May God protect our troops. Thank you.
2:22 P.M. EDT
India's Record Run in Stocks Is Raising Risks for Economy – BNN
(Bloomberg) — A pick-up in consumer demand, record-low interest rates and improving prospects for the manufacturing sector will probably fuel the rally in Indian stocks, even as the dizzying pace of gains increases risks for the economy.
These are the conclusions of new research from Bloomberg Intelligence and Bloomberg Economics after the NSE Nifty 50 Index climbed 130% to a record from lows touched in March 2020, supported by the central bank’s liquidity injections, millions of new retail investors, and the regulatory crackdown in China. The rally has added roughly 1 percentage point to GDP growth each quarter since October-December.
“The case for India’s equities remains structurally positive, we believe, amid resurgent consumer demand, manufacturing in a ‘China Plus One’ world, regulatory overhaul and the trajectory of monetary and fiscal policy,” Gaurav Patankar and Nitin Chanduka, analysts with Bloomberg Intelligence, wrote in a note.
However, the sharp run-up in gains has increased the economy’s vulnerability to a market setback. The Nifty is now trading at 22.2 times estimated 12-month earnings, well above its five-year average of 18.5. By comparison, the MSCI Emerging Markets Index is trading at a multiple of 12.7.
A retreat for the Nifty, trading at about 35% above its historical trend level, would reduce GDP by 1.4% in the same quarter of the shock and by 3.8% over the following year, Ankur Shukla, an economist with Bloomberg Economics, wrote in a separate note.
“The higher stocks climb, the greater the risks to the economy if they correct — an important consideration at a time when the Federal Reserve is weighing the timing of tapering stimulus,” Shukla said.
©2021 Bloomberg L.P.
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