India’s Output Expands at Slowest Pace in 9 Months

September 04, 2012 /

Output in the Indian manufacturing sector has increased in August, albeit continued powercuts that hamper production.

With exports slightly down, production subsequently expanded at the slowest pace in nine months. New export orders fell for the second successive month, amid reports of weaker international demand and unfavourable exchange rate conditions.

However, the rate of contraction was only slight. Meanwhile, the current period of expansion in order book volumes was extended to a 41-month sequence. That said, the latest data signalled the slowest rate of growth since last November.

The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) posted 52.8 in August, broadly unchanged from the reading of 52.9 recorded in July. Although the health of the manufacturing sector continued to improve, the pace of expansion was the slowest in the year-to-date.

Post-production inventories at manufacturers in India were accumulated at a slight pace. According to panellists, stocks of finished goods increased due to weaker-than-anticipated demand. Pre-production
inventories also increased, and the current sequence of accumulation in stocks of purchases was extended to
four months.

Input price inflation persisted in the Indian manufacturing sector during August. The rate of increase was steep, but the slowest in six months. Respondents signalled that input costs rose in line with general market inflation and increasing raw material prices. Charges also increased, as manufacturers reportedly passed on the latest rise in raw material prices to their clients.

Payroll numbers at manufacturing companies in India increased for the sixth successive month amid reports
of business growth. Workforces expanded sharply, and at the fastest pace since data collection started in April 2005.

Furthermore, backlog accumulation was recorded as power shortages persisted. That said, the pace of growth was only slight. Powercuts also affected vendor performance, it was reported. Average lead times lengthened at a slight pace during the reporting month.

Finally, purchasing activity increased for the forty-first successive month. Anecdotal evidence suggested that quantity of purchases expanded in line with higher productivity.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: “The momentum in the manufacturing sector eased
further on the back of weak external demand and output disruptions caused by the major power failures in early August. The power failures also partly contributed to a rise in backlogs of work as manufacturing companies struggled to finish orders on time. However, employment remains a bright spot, expanding at the
fastest pace since data collection started 7 years ago.

“The inflation picture, on the other hand, was a bit mixed. While input price rose at a slightly slower pace, output price inflation picked up due to higher import costs and taxes. With the slowdown partly supply driven and inflation risks still lingering, these numbers underscore that the room for policy rate cuts is very limited at the moment.”


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