Manufacturing activity shrinks in December

Manufacturing activity shrinks in December

India's HSBC manufacturing Purchasing Managers' Index (PMI) for the month of December slipped to 50.7 from an eight-month high of 51.3 in November. The average PMI for the October-December quarter was slightly higher at 50.5 compared to 49.4 in July-September.

A below 50.0 PMI indicates a contraction in manufacturing activity, while above 50.0 suggests expansion.

“Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth. By sector, however, the consumer goods segment held up,” HSBC India & ASEAN Chief Economist Leif Eskesen said.

Manufacturing output rose for the second straight month led by new business especially in the consumer goods sectors. Export orders grew for the third consecutive month, but overall rate of growth was modest.

Employment in manufacturing units grew marginally in December, while overall inflation rate remained robust. Companies attributed higher prices to raw materials like metal, chemicals and textiles. Output prices rose for the seventh straight month.

“The numbers show that growth remains moderate and struggles to take off due to lingering structural constraints. Even so, inflation pressures remain firm and are proving sticky. Reserve Bank of India may yet again have to flex its muscles and tighten monetary policy to bring down the elevated level of inflation,” Eskesen said.

The Reserve Bank of India,  in its second quarter monetary policy in October last year, raised the repo rate under the Liquidity Adjustment Facility by 25 basis points for the second time since September in order to anchor inflationary expectations.

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