PMI, core split clouds recovery

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New Delhi | Published: June 2, 2015 1:42:08 AM

While the latest estimate of national income showed a pick-up in manufacturing and signalled a gradual recovery in investment...

Service PMiAs per the HSBC PMI, India performed better than many global peers, including China. (Reuters)

While the latest estimate of national income showed a pick-up in manufacturing and signalled a gradual recovery in investment, incremental data for subsequent months that came out on Monday barely corroborated those assumptions. A delay in the onset of southwest monsoon — which is now seen to hit Kerala coast on June 5, a week later than the earlier forecast — accentuated the worries about the economy’s ability to gather pace. The farm sector might not grow faster than last year’s dismal 0.2%, some analysts said, prognosticating a weak and erratic monsoon that could hit the geographical spread of rains in major producing areas.

The HSBC Manufacturing Purchasing Managers’ Index for India, compiled by Markit, rose to 52.6 in May from 51.3 in the previous month, the fastest pace in four months as domestic demand improved.

Exports that have remained a laggard in recent months showed no sign of a pick-up, though.

However, core sector growth hit an 18-month low of 0.4% in April, a sign that the 8.4% growth in the gross value added in manufacturing reported last week for the final quarter of the last financial year might undergo a downward revision. The GVA growth in manufacturing for Q4 anyway seemed inconsistent with growth in manufacturing output of 3.6% for the quarter as shown in the index of industrial production.


All eyes are on the Reserve Bank of India governor Raghuram Rajan as he reviews the monetary policy on Tuesday, with most analysts expecting a cut of 25 basis points in the policy rate.

As per the HSBC PMI, India performed better than many global peers, including China. Manufacturing recorded growth for the 19th month in a row for India. An index monitoring new orders, which reflects underlying demand, rose to 54.3 in May from 51.9 in the previous month, although new export order index declined to 53.3 in May from 54.1 in the previous month on continued lacklustre performance by the export sector.

As reported by FE earlier, a survey by the apex exporter body FIEO said that up to three-fourths of exporting companies showed orders from importers in hand in April 2015 were less than that in the same month a year earlier.

The decline was in the range of 18-80%, or around 35% on average. Even as imports also fell due to reduced domestic demand and low global prices of oil and other commodities, net exports (merchandise plus services) was yet to turn positive in Q4, last week’s CSO data had said.

In the core sector, apart from a decent growth rate of 7.9% in coal in April and a flat expansion rate of 0.6% in steel, all other six segments witnessed contraction.

Private final consumption expenditure dropped to 55.5% of GDP in the last quarter of 2014-15, compared with 57.8% in the previous quarter, and government final consumption expenditure, too, dropped to just 8.2% of GDP from 10.4% in the previous quarter, mainly on a spending cut by the government to adhere to the fiscal discipline target.

Even fixed investment remained tepid, with just a marginal improvement (29.7% of GDP in the March quarter versus 29.6% in the previous one).

“A quick look at HSBC PMI in May would suggest a sharp increase in output and order flows, but this uptick comes on the back of a very weak April reading. Averaging out the two to filter out the noise shows that manufacturing growth is running at the same pace as in March and moderately better than the same time last year (headline PMI index for April-May is 52.0 vs 52.1 in March), suggesting that recovery is on track, but remains quite modest,” HSBC Global Research said in a report. “Thus, by filtering out the noise we see that manufacturing growth is steady at a modest pace, rather than accelerating.”

Elsewhere in Asia and Europe, manufacturing activity showed little sign of jump. The PMI for China witnessed a third straight month of contraction in May. Although the PMI index for the euro zone was 52.2, just above 52 in April, the region’s top two economies struggled. While German factory growth slowed to a three-month trough and French manufacturing activity, though showing some signs of improvement, still contracted.

Price pressures have started to move up for manufacturers, likely led by higher fuel costs and a weaker rupee, the report said. “But inflation momentum is still below trend, which should provide the RBI with just enough space for a final 25bp rate cut to support growth. If the rate cut does materialize in tomorrow’s meeting, it is likely to come with a hawkish commentary,” it added. Retail inflation eased to a five-month low of 4.87% in April, while wholesale price inflation hit -2.65% during the month, the lowest in at least nine years.

Companies cut staffing levels for the third month out of the last four in May.

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