Self-sustaining recovery ahead

The 2.6% year-on-year increase in July industrial production, when most expected the contraction trend of past two months to persist, came as a surprise. That this unexpected rebound is driven solely by a 15.6% jump in capital goods’ growth has led many to conclude the data are one-off; a recovery will be weak and unlikely self-sustaining. However, relating capital goods and exports, which grew at 12-13% in two consecutive months to August, historical patterns portend a self-enforcing, virtuous cycle ahead, largely built upon strengthening external demand, supported by domestic rural consumption.

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