Consumer Outlook 2021: Cautious But Optimistic

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Fitch Solutions What is the key view and forecast? We forecast real household spending in India to return to growth in 2021, growing by a projected 9.1% y-o-y. However, we note that the economic impact of the Covid-19 pandemic has created a significantly low base from which to grow. We estimate that real household spending contracted by -9.3% over 2020. In June 2021, no nationwide lockdown was imposed but 35 of 36 states and union territories in India had some form of restrictions, amid the second wave of outbreak. India commenced its vaccination drive on January 16 2021, and the country has administered 16.4 vaccine doses per 100 people as of June 5 2021 (latest data available), higher than regional peers Bangladesh and Sri Lanka, which have administered 6.1 and 10.6 doses per 100 people respectively. A key risk is a resurgence of community transmission, particularly if lockdowns are reintroduced nationwide and consumers delay purchases to reduce health risks, which will weigh heavily on consumer spending recovery in 2021. What is the outlook for 2021? We hold an optimistic outlook for the Indian consumer over 2021, with real growth in household spending forecast at 9.1% y-o-y. This marks the start of a recovery from the -9.3% y-o-y contraction in real household spending estimated over 2020. Despite the projected growth in 2021, we note that the real value of total household spending will remain below pre-Covid-19 levels (2019), with real household spending forecast to reach a total of INR73.3trn (USD1trn) in 2021 compared to INR74.0trn (USD1.1trn) in 2019. This indicates that the recovery of the consumer and retail sector in India will spill over into 2022. What are the patterns of consumer spending in 2021? Our forecast for an uptick in consumer spending in India in 2021 is in line with our Country Risk team’s forecast that India's economy will grow by a real rate of 9.5% y-o-y over 2021 from an estimated -7.9% y-o-y contraction in 2020. Over 2021, average unemployment (as a % of total labour force) will remain elevated at 8.0%, and is projected to fall below pre-Covid-19 levels only in 2023. We highlight that this unemployment rate may be underestimating the real rate of unemployment in the country, which poses a risk to our outlook, if unemployment is more severe than forecasted. People returning to work, but working fewer hours than pre-Covid-19, or taking lower-paying jobs will put further downside pressure on disposable incomes. In 2021, households’ disposable income will grow to INR416,400 (USD5,665), surpassing pre-Covid-19 levels of INR408,800 (USD5,805) in 2019, which will help support domestic demand. However, we highlight that inflationary pressures may weigh down on spending, which will average at 5.0% in 2021, outpacing income growth. As such, the Indian consumer will remain under pressure over 2021 and so spending growth is stemming from a lower base. A new wave of Covid-19 infections in India that started in March 2021 will weigh heavily on consumer spending recovery in 2021. With new daily cases now declining and authorities looking to relax restrictions, we hold a cautious but optimistic outlook that consumer spending will start to build up in H221. However, we note that a resurgence of community transmission will pose a risk of delay in the recovery, particularly if lockdowns are reintroduced nationwide and consumers delay purchases to reduce health risks (as we have seen in Malaysia). This could see the economy recover more modestly in 2021, and we will continue to review the situation and revise our forecasts if required. Getty Images