India’s economy showed resilience in March despite weakening exports and an increase in unemployment, according to Bloomberg’s Animal Spirits barometer. The overall activity tracker, which comprises eight high-frequency indicators, remained unchanged at 5 for a third straight month.

However, weakness in demand for manufacturing goods and services activity could be a drag on India’s recovery. Here are the details from the Animal Spirits barometer:

Business Activity

Purchasing managers’ surveys showed that manufacturing activity improved in March as the pressure on supply chains based on the increased availability of raw materials. Activity in the services sector moderated in March from a 12-year high in the previous month, bringing the composite index down to 58.4 from 59 in February.

“A sizable proportion of services firms hiked their selling prices to hedge against rising costs,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. This suggests that firms are feeling the pinch from rising input costs, which could put pressure on their profit margins.

Exports

Exports dropped 13.9% in March, declining for a fourth straight month, while imports fell 7.9% from a year ago. “Headwinds from a slowing global economy are beginning to weigh more on exports,” said Rahul Bajoria, an economist at Barclays Plc.

However, electronics exports gained traction, rising 57% in March from a year ago as major mobile equipment manufacturers are setting up production units in India with the China-plus-one strategy gaining ground. Apple Inc. now makes almost 7% of its iPhones in India and opened company-owned stores this week in the South Asian country to push retail sales.

Consumer Activity

Liquidity in the banking system swung to a surplus in March, while credit growth moderated to 15% from 15.52% in February, according to central bank data. Goods and services tax collections, which help measure consumption in the economy, rose 13% from a year earlier to 1.60 trillion rupees ($19.5 billion) in March—the second-highest level in the history of the six-year-old levy. New vehicle registrations slowed to 14% in the month from a 16% increase in February, according to data from the Federation of Automobile Dealers Associations. Yet, passenger vehicle sales growth improved to 14.42% year-on-year from a 10.9% rise a month ago.

Market Sentiment

Electricity consumption, a widely used indicator to measure demand in the sector and manufacturing industries, has been moderated. Peak demand in March fell to 170 gigawatts from 181 gigawatt a month ago. The unemployment rate climbed to 7.80%, from 7.45% a month ago, according to data from the Centre for Monitoring Indian Economy Pvt, as companies tightened purse strings after the festive season.

Outlook for India’s Economy

While the Animal Spirits barometer remained unchanged at 5 for a third straight month, the weakening pace of exports and the increase in unemployment dimmed the outlook for India’s economy. Retail and wholesale price gains have eased on still-elevated rates, spurring calls for a longer pause. India’s Finance Minister Nirmala Sitharaman said her government was making “enough efforts” to ensure the economy stays buoyant, though she expressed concern over the OPEC output cut and impact of decisions related to Russia’s war in Ukraine. Weakness in demand for manufacturing goods and services activity could be a drag on India’s recovery, she added.

The Reserve Bank of India paused rates for the first time since May to evaluate the impact of 250 basis points in rate increases so far and to support growth. Retail and wholesale price gains have eased on still-elevated rates, spurring calls for a longer pause. The government has taken steps to support the economy, such as pausing rates for the first time since May to evaluate the impact of 250 basis points in rate increases so far and to support growth. Retail and wholesale price gains have eased on still-elevated rates, spurring calls for a longer pause.

Finance Minister Nirmala Sitharaman said that her government was making “enough efforts” to ensure the economy stays buoyant. However, she expressed concern over the OPEC output cut and the impact of decisions related to Russia’s war in Ukraine. Weakness in demand for manufacturing goods and services activity could be a drag on India’s recovery, she added