x Abu Dhabi, UAEWednesday 26 July 2017

India manufacturing activity makes for grim reading

India Dispatch: India's manufacturing activity last month contracted for the first time in four and a half years, a survey showed yesterday, adding to concerns surrounding the Indian economy.

India's manufacturing activity last month contracted for the first time in four-and-a-half years, a survey showed yesterday, adding to concerns surrounding the Indian economy.

The HSBC Purchasing Managers's Index (PMI) fell to 48.5 last month from 50.1 the previous month. A reading below 50 signals a contraction.

"Manufacturing activity contracted in August for the first time since March 2009," said Leif Eskesen, HSBC's chief economist for India and Asean.

"The weakness in growth was led by a decline in order flows from both domestic and foreign sources. The August reading was grim. Coupled with the July reading it seems clear that the economy is continuing to slow and that last week's April to June GDP number was not the bottom."

GDP data released on Friday showed that India's economic growth slowed more than expected to 4.4 per cent in the quarter between April and June.

Policymakers are also struggling to support the Indian rupee, which has fallen to a series of record lows against the dollar in recent weeks as India grapples with a record current account deficit, while funds are flooding out of emerging markets on signals from the United States Federal Reserve that it will start scaling back its stimulus programme.

A number of banks and research firms are lowering their growth projections for India.

HSBC yesterday revealed that it had revised its GDP growth forecasts for the current financial year down to 4 per cent from a previous estimate of 5.5 per cent and to 5.5 per cent from 6.6 per cent for next year.

"Growth is likely to continue to slow near term due to tighter financial conditions and higher macroeconomic uncertainty," said Mr Eskesen.

Indicators "suggest that the growth momentum eased further during the July to September quarter in both the manufacturing and services sectors", he added.

There were a number of factors driving the slowdown, he explained.

"For one, the reform announcements have yet to translate into action on the ground. Moreover, the RBI's [Reserve Bank of India's] currency stabilisation measures have raised funding costs.

"Finally, heightened macroeconomic uncertainty is making consumers and businesses more cautious about spending."

 

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