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Factory Growth Accelerated In Feb

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February’s reading exceeded expectations for 54.3 in a Reuters poll and was above the 50-mark that separates growth from contraction for an eighth month

India’s factory activity growth accelerated in February as the threat from a third COVID-19 wave eased, while some softening of price pressures meant demand and business expectations strengthened, a private survey showed.

However, the survey was conducted before Russia invaded Ukraine, which led to an immediate spike in oil prices. India is the world’s third-largest importer of oil so the crisis will add to inflationary pressure and hurt consumer sentiment.

The Manufacturing Purchasing Managers’ Index (INPMI=ECI), compiled by IHS Markit from Feb. 10-22, improved to 54.9 in February from 54.0 in January.

February’s reading exceeded expectations for 54.3 in a Reuters poll and was above the 50-mark that separates growth from contraction for an eighth month.

“For now, India’s manufacturing sector has weathered the storm of the Omicron variant, undoubtedly supported by the relatively high inoculation rate,” noted Shreeya Patel, an economist at IHS Markit.

Output and new orders expanded for an eighth month in a row in February, led by the consumer goods sector on favourable demand and increasing sales. Growth in international demand for Indian manufactured goods rose marginally to a three-month high.

Business expectations for the next 12 months improved and the index rose to a four-month high on hopes of a return to normality and expansion plans.

However, firms continued to shed jobs for a third month, although the pace of decline was marginal and the slowest in the sequence.

The input prices index was at a six-month low in February but showed raw material costs had risen for a 19th month, driven by higher prices of metals, cotton, chemicals and rubber. Factories passed some of those higher expenses to customers.

“There were, however, some key concerns that continued to threaten growth. Most prominently, cost pressures remained elevated as a result of shortages while delivery times lengthened once again,” added Patel.

India’s economy expanded 5.4% last quarter, slower than the previous two quarters and below 6.0% growth expected in a Reuters poll. read more

A jump in oil prices due to the Russia-Ukraine crisis is likely to have a big impact on inflation and the rupee as well as widening India’s current account deficit, slowing growth further.

The Reserve Bank of India was expected to raise rates next quarter to combat inflation, but if the crisis deepens it could change those predictions.

(Reuters)

economy

Factory Growth Hits 10-Month High In November

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An easing of COVID-19 restrictions drove demand and boosted sales, indicating the economy was on the path to normalization.

India’s manufacturing activity grew at the fastest pace in 10 months in November, buoyed by a strong pick-up in demand, but higher inflationary pressure left factories worried about their future prospects, a private survey showed on Wednesday.

An easing of COVID-19 restrictions drove demand and boosted sales, indicating the economy was on the path to normalization.

Compiled by IHS Markit, the Purchasing Managers’ Index rose to 57.6 in November from 55.9 in October. The reading was the highest since January and the fifth straight month above the 50-mark that separates growth from contraction.

“The Indian manufacturing industry continued to expand in November, with growth gathering pace and forward-looking indices generally pointing to further improvements in the months to come,” said Pollyanna De Lima, economics associate director at IHS Markit.

“The fact that firms purchased additional inputs at a stronger rate amid efforts to restock, combined with recurring declines in inventories of finished goods and tentative signs of a pick-up in hiring activity, indicate that production volumes will likely expand further in the near-term.”

New orders improved sharply – the strongest since February – mostly driven by domestic demand. That resulted in production rising for a fifth consecutive month and at the fastest pace in nine months.

Firms increased headcount to meet the elevated demand, ending a three-month sequence of reduction, although the pace of job creation was minimal.

But the optimism was darkened to some extent by soaring input price inflation. Barring October, the input prices sub-index was at the highest in almost eight years owing to supply constraints and rising transportation costs.

“Should raw material scarcity and shipping issues continue to feed through to purchasing prices, substantial increases in output charges could be seen and demand resilience would be tested,” De Lima said.

Output prices continued to rise moderately, indicating firms passed on some of their additional cost burden to clients.

The Reserve Bank of India is not expected to raise interest rates until at least the beginning of next financial year, according to a recent Reuters poll, but it might consider a rate hike earlier to curb inflation.

ndia’s economy expanded by 8.4 per cent in the July-September quarter from a year earlier, but economists said disruptions from the emerging Omicron coronavirus variant risked slowing the recovery, especially given the country’s low vaccination rates.

(Reuters)