Manufacturing shrinks in Aug, core sector growth picks up

Global forecasters cut India growth projections amid rush of gloomy data

Manufacturing activity contracted for the first time in August since the peak of the global financial crisis in March 2009, as indicated by the HSBC purchasing managers’ index (PMI). The contraction was more severe this time, shown by a reading of 48.5 on the index as against 49.5 then. Even sequentially, there was a drop following a reading of 50.1 in July. A reading of 50 or above indicates growth and below it contraction.

The bad news on manufacturing comes closely after the country’s economic growth was announced to have fallen to a four-year low in the first quarter of 2013-14. Manufacturing activity declined as fresh orders, including from abroad, were not forthcoming, the survey showed. “The fall was led by a decline in new orders, especially export orders,” said Leif Eskesen, chief economist for India and Asean at HSBC. Export orders declined in August, snapping an 11-month rising spree. (PESSIMISM TAKES ROOT)

The growing pessimism on the Indian economic outlook was shared by global financial firm Nomura, which cut the country’s GDP growth forecast to 4.2 per cent for the financial year from 5 per cent earlier. HSBC, in fact, lowered its projection even more — to 4 per cent from 5.5 per cent. That would imply the economy going back to the growth rates of 2002-03. JPMorgan scaled down its estimate to 4.1 per cent from 5.1 per cent earlier. Economic growth had slowed to 5 per cent in 2012-13.

The services PMI for July fell to 47.9 points — the first contraction since November 2011. However, amid the gloomy data, growth numbers for the eight core industries provided hope. These industries, which have a weight of nearly 38 per cent in the Index of Industrial Production (IIP), grew 3.1 per cent in July, a four-month high. This is also the highest growth figure for the core sector for the year so far.

Markit Economics, the financial information firm that compiles PMI data, said fragile economic conditions and subdued client demand led to the fall in new orders placed with Indian manufacturers.

Consumer goods producers posted a slight decline despite expectations of a rise to the upcoming festive season.