Manufacturing growth at 4-month high on domestic push

Manufacturing growth at 4-month high on domestic push

Manufacturing sector grew at its fastest pace in four months in May on improved domestic demand, even as input costs remained high and firms adopted a cautious approach on hiring, an HSBC survey said today.

The latest manufacturing data comes just a day ahead of the RBI's scheduled monetary policy review where the central bank is widely expected to lower the rates to further boost the investment flow and the manufacturing sector.

The headline HSBC India Purchasing Managers' Index (PMI), compiled by Markit, surged to 52.6 in May, from 51.3 in April, with levels of production and new orders rising at the fastest rates since January 2015.

The PMI is a composite gauge designed to give a single figure snapshot of manufacturing business conditions. A figure above 50 indicates the sector is expanding while below that level means contraction. The data shows that manufacturing sector has been growing for 19 consecutive months now.

"PMI data signalled a further robust expansion of the Indian manufacturing economy in May. Both output and new order growth accelerated to 4-month highs whereas the rise in export orders lost traction," Markit Economist Pollyanna De Lima said.

Despite the uptick in growth, manufacturing employment was broadly unchanged in May. Over 99 per cent of panelists reported same staffing levels, citing uncertainty about the sustainability of growth.

"The outlook for the sector is, however, clouded by a stagnant job market as firms remain uncertain about the sustainability of the upturn," Lima added. The total volume of new orders received by manufacturing firms also increased for the 19th successive month and at the fastest pace in four months, driven by improved demand from the domestic and foreign markets. However, the rate of expansion of overseas orders moderated in May.

On inflation, Lima said: "Input cost inflation ticked higher and output prices were raised in May, but inflation rates are nonetheless weak in the context of historical data. This indicates that further rate cuts are still on the horizon."

The central bank has lowered its policy rate twice so far in 2015, but kept it unchanged at its last review on April 7 on fears of unseasonal rains affecting food prices.

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