Pent-up demand spurring activity, may not sustain: ICRA

The pick up in economic activity in October was the result of pent-up demand and may not sustain going ahead, ratings agency Icra said on Tuesday.

Multiple fast-paced indicators, including GST collections, had been showing a sharp recovery since October, which has also led many analysts to revise their overall GDP forecasts for the fiscal.

“We caution that the spikes in production seen in the various sectors in October 2020, are an exaggeration of the true recovery on the ground, as they have been driven by a large component of pent-up demand that may not sustain after the festive period is over,” the agency’s principal economist Aditi Nayar said.

The factors that need to be watched are the pace of government spending in the second half of the fiscal, after the unexpected contraction recorded in the September quarter, she added.

The potential re-imposition of restrictions in one or more States on account of a fresh surge in COVID-19 infections may temper the momentum of recovery in the coming months, she warned.

The agency said that available trends for early November suggested some moderation in these spikes.

In October, 10 of the 17 high-frequency indicators tracked by the agency showed a pick-up.