Composite PMI too hints at slowdown

The fear that the economy is slowing down has been confirmed yet again. Two sectors that occupy a dominant position in the Indian economy — manufacturing and services — showed slowdown signs in May.

In fact, the services sector expanded at its slowest pace in 20 months, the HSBC Purchasing Managers Index (PMI) showed on Friday. The composite index, which covers manufacturing and services, fell to 57.7 points from 60.7 points in April.

PMI is compiled on the basis of a survey of 480 companies each from manufacturing and services sectors. It does not cover public sector companies, but is considered a good indication of the way these two sectors are performing.
 

LATEST SYMPTOMS

PMI BUSINESS ACTIVITY Index for services fell from 59.2 points in April to 55 points in May – the lowest since September 2009
GDP GROWTH for the fourth quarter at 7.8 per cent, the lowest in a year
SIX CORE SECTOR industries expanded 5.2 per cent in April, a five-month low
EXPORTS, however, grew 34.4% in April despite uncertainty in Europe and the US. Economists, however, said this trend would not sustain in the remaining months of this financial year

“Both manufacturing and services grew, but the extent of the increase eased. For the latter, this was highlighted by a fall in the seasonally adjusted Business Activity Index from 59.2 to 55 points, the lowest reading since September 2009,” said a statement from financial information company Markit Economics, which compiles the index.

A PMI reading of above 50 points shows growth.

New business growth across manufacturing and services also slowed. “The extent of the slowdown was more notable in the latter, with new work intakes the weakest since October 2010,” it said.

However, the services companies were hopeful that the activity would rise over the next 12 months. But, the degree of positive sentiment fell markedly since April to its weakest in ten months, said Markit Economics. Leif Eskesen, chief economist for India & ASEAN at HSBC, said, “The easing momentum of business activity and new business is evidence that policy tightening and high inflation are filtering through to growth.” He said despite the momentum slowing, growth was solid and would keep inflation pressures simmering. As such, the Reserve Bank of India had no choice but to continue tightening, said Eskesen.