Japanese GDP, RBI's dividend and virus comeback down under

As the second quarter GDP numbers are coming out for countries across the world, we are witnessing some previously unthinkable stats. One such number, released today, was Japan’s second quarter GDP numbers. The GDP contracted by close to 27% on a YOY basis for the second quarter. As we saw the most virus related lockdown measures being implemented from mid-March, these are not surprising results. After a 20% decline in UK’s GDP, the Japanese number represents how complete the annihilation has been. Indian figures for June quarter, due out on August 31, are expected to show a contraction in the range of 5 to 10%.

The issue though is not the number for one quarter but the lingering effect which it is going to produce. We have written previously that the longer the situation persists the more structural and endemic the problem becomes. Certain economic agents which do not have the liquidity to weather the storm can drop off the scene entirely. This is the entire debate which is at the heart of the current stalemate between the US Senators on pandemic relief. The fact is that this disappearance of a certain set of economic agents and their economic activity can induce distortions in the proper functioning of the economy which will take years to rectify. Sudden distortions though are not always negative. It’s just that they are unpredictable and have second order consequences.

In other news, reports coming from Australia are not sounding great for the recovery hopefuls as the country is experiencing a fresh wave of infection cases. This comes close on the heels of news from New Zealand where a sudden spike in cases has forced the govt to delay the elections by four weeks. These developments essentially convey that world’s economic recovery might have an oscilloscopic pattern rather than the often touted simple ‘V’. This is not a ground breaking observation as the markets, especially the equity ones, have already figured this out. An alternating pattern of virus cases and lockdowns will ensure that the policy makers don’t step off the liquidity and easy money pedal.

This week will see the release of Fed and ECB minutes for their July policies.

Domestically, the important news of Friday was the declaration of the RBI dividend for the government to the tune of 57000 Cr INR. The government, in its budget, had kept a space of 60000 Cr INR from the RBI hence the figure is only around that number. But there was a section in the market which believed that the budget number, which was a pre covid estimate and had not accounted for the precarious state brought by virus, will not be the guiding marker for the dividend number. Hence the expectation was for a bigger pay out. The GS 5.79 2030 is trading at 5.97 in the opening which is the highest for the bond.

India’s trade data for July was also released on Friday showing a deficit of USD 4.83 billion with imports contracting by 28% from levels a year ago.