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Manufacturing Expansion Slows `Marginally' as Exports, New Orders Weaken
India’s manufacturing expansion cooled “marginally” last month as exports and new factory orders weakened, HSBC Holdings Plc and Markit Economics said.
The purchasing managers’ index, run by the two, fell to 57.2 from 57.6 in July, according to an e-mailed statement today. A reading above 50 indicates expansion.
Today’s report highlights the Reserve Bank of India’s concerns about risks to growth from a faltering global recovery even as it tries to slow price gains. Economists expect the central bank to add to its four interest-rate increases this year as inflation stays around 10 percent.
“There is still plenty of fire power to come from industry even though year-on-year growth may not look as stellar as in the recent past,” Frederic Neumann, co-head of Asian economic research at HSBC, said in the statement. “Inflation continues to threaten.”
He expects the RBI to raise rates by a quarter-point at its next monetary policy announcement on Sept. 16.
The index of new factory orders declined to 62 in August from 62.8 in July and exports slipped to 55.5 from 57.4, according to the statement.
By contrast, China’s manufacturing grew at a faster pace last month after the weakest performance since early 2009, a PMI report backed by the government showed today.
Stocks Gain
Stocks in Asia advanced after China’s PMI data offered reassurance that the nation’s moderation in growth isn’t deepening; any steeper slowdown in China would hurt a global recovery already hindered by elevated American unemployment.
The Bombay Stock Exchange’s Sensitive Index gained 0.7 percent at 11 a.m. in Mumbai, while the yield on the benchmark 10-year government bond fell 1 basis point to 7.92 percent. The rupee gained 0.4 percent to 46.90 against the dollar.
India’s manufacturing data comes after the statistics office yesterday reported that the nation’s $1.3 trillion economy expanded 8.8 percent in the three months through June, the fastest pace in 2 1/2 years, indicating consumer demand remains strong in Asia’s third-largest economy.
Reserve Bank Governor Duvvuri Subbarao has undertaken the most aggressive round of rate-increases among Asian central bankers this year, boosting the reverse repurchase rate to 4.5 percent and the repurchase rate to 5.75 percent. Malaysia is second with three moves.
Inflation Pressures
In India, inflation pressures are “coming up sharply” even as the global economy has moved to a state of “less comfort,” central bank Deputy Governor Subir Gokarn said Aug. 25. Balancing the two risks while setting rates is the RBI’s challenge, he said.
Rising demand for cars and bank loans provides evidence of growing consumption in the South Asian nation.
Sales at companies including Maruti Suzuki India Ltd. and Ford Motor Co. climbed 38 percent in July from a year earlier to a record 158,764 vehicles, according to the Society of Indian Automobile Manufacturers.
Bank lending to businesses and individuals grew 20.14 percent in the two weeks to Aug. 13 from a year earlier, which is near the fastest pace since January 2009.
India’s growth may accelerate to 8.5 percent in the 12 months to March 31, the fastest pace in three years, Morgan Stanley economist Chetan Ahya said in a note yesterday, citing a revival in rural demand.
About three-fifths of India’s 1.2 billion people live in the countryside and depend on agriculture for their livelihood.
Adequate rains in the June-September monsoon season, the main source of irrigation in the country, may yield “bumper” harvests, Farm Minister Sharad Pawar said in August. Last year’s rains were the least since 1972.
The central bank said last week that controlling inflation will remain its priority as demand surges.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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