Manufacturing PMI slows in December; still strongest performance since 2012

Indian manufacturing activity expanded at a slower pace in December as growth in new orders and output waned, despite factories cutting their prices, a private survey showed on Wednesday.

The Nikkei Manufacturing Purchasing Managers' Index, compiled by IHS Markit, declined to 53.2 in December, below November's 54.0 reading and a Reuters poll median of 53.6.

But that was above the 50 mark, which separates growth from contraction, for a 17th month and manufacturing activity registered its strongest quarterly performance since late 2012.

The manufacturing PMI "indicated that the sector ended 2018 on a high, with growth stronger than seen at the start of the year," noted Pollyanna De Lima, principal economist at IHS Markit.

"Output continued to rise strongly, in line with a robust upswing in sales. Companies benefited from rising international demand for Indian goods, as export orders expanded for the fourteenth straight month."

Although new orders and output expanded at a slower rate last month, both have remained well into expansion territory for more than a year, supported by weaker inflationary pressures.

December saw the weakest increase in input costs for nearly three years, giving factories room to cut their prices for the first time since July 2017.

That increases the likelihood inflation will be benign in coming months. India's consumer price index hit a 17-month low of 2.33 percent in November, remaining well below the Reserve Bank of India's medium-term target of 4 percent for a fourth straight month.

De Lima said that during December "spare capacity was evident, with vendors' delivery times unchanged and input cost inflation softening. These signs of easing inflationary pressures indicate that we're likely to see the RBI adopt an accommodative monetary policy stance in early 2019."

Despite a strong performance in 2018, the survey indicated manufacturing firms were turning cautious. Hiring in December slowed as optimism waned amid uncertainty ahead of a national election scheduled for May.