<img alt="" src="https://secure.item0self.com/192027.png" style="display:none;"> Top Stories

India's contracting economy reflects on key commodity prices

September 28, 2020

1 mins read

The most recent dataset shows that the COVID-19 related lockdown restrictions severely hit the Indian economy in the second quarter of 2020. India’s Gross Domestic Product (GDP) declined by 23.9% y-o-y during this period, the worst contraction in decades.

The agriculture industry was the only industry that experienced a growth (3.4% y-o-y), while sectors such as construction (-50% y-o-y), transport, communication, mining and manufacturing reported a steep decline. The growth experienced by the agriculture industry is in line with the increase in demand for various food commodities (domestic and international), as consumers coped with the impact of the pandemic. In addition, other indicators such as private consumption, which accounts for 57% of GDP, fell by 26.7% y-o-y, while exports fell by 20% y-o-y during Q2 2020. A decline in private consumption signals less buying power of consumers to spend on goods and services in the market, and thus a weak economy. Consequently, if private consumption continues to decline, the demand for commodities is likely to remain weak, weighing on prices.

The Indian government has been trying to support the supply-side factors, which could prevent the GDP from falling further. However, an increasing number of COVID-19 cases in the country is expected to result in local/national lockdown. This is likely to result in lower consumer spending, thus acting as a downside risk to economic growth.

India is one of the top exporters of commodities such as onions, cotton, sugar, rice, spices and aluminum and one of the biggest importers of crude oil and nuts. Mintec prices for Indian onion and cotton fell by 56% q-o-q and 9% q-o-q respectively in Q2 2020, in line with a y-o-y decline in exports. Also, Mintec prices for aluminium fell by 4% q-o-q during the same time. Overall, the current market situation in India indicates a weaker economic outlook, which could lead to potential production/cultivation issues. Top Indian exporting destinations such as Bangladesh, Vietnam, China and Sri Lanka are likely to experience supply deficit, exerting upward pressure to commodity prices.

Topics: Other, Coronavirus
Rutika Ghodekar
Rutika Ghodekar

/You May Also Like

Featured Image
  Exchange-traded cocoa prices have been on a wild upswing, rising...
Featured Image
The pandemic has had a significant impact on the nuts market from...