Manufacturing growth in Feb fastest in a year

Tags: News

New orders hit one-year high, export demand best since July

Indian manufacturing activity and new orders showed their strongest growth in a year in February, according to a survey released on Monday that suggested that the worst is over for Indian factories struggling through an economic slowdown.

The survey’s results should provide some relief after data on Friday showed Asia’s third largest economy grew by a slower-than-expected 4.7 per cent annually in the three months through December, dragged lower by a contraction in manufacturing and mining.

The HSBC manufacturing purchasing managers’ index (PMI), which gauges business activity of factories but not utilities, rose to 52.5 in February, its highest in a year, from 51.4 in January.

Overall new orders for factory goods, which rose to a one-year high of 54.9 contributed to the surge. Export orders climbed to their highest in eight months. “Manufacturing activity picked up further in February. New order flows have firmed, with an improvement in external demand and the reduction in macroeconomic uncertainty since last summer,” said Leif Eskesen, chief economist for India and Asean at HSBC.

The HSBC survey showed a sharp rise in input prices in February although firms passed these rises on at a slower pace than last month. Costlier raw material prices for manufacturers could lead to higher consumer price inflation, which was running at 8.79 per cent annually in January.

The Reserve Bank of India has unofficially started targeting consumer prices to frame its policy and any sign of rising costs will likely pressure the central bank to hike rates again.

RBI has hiked the repo rate thrice since September, cementing its inflation-fighting credentials, although it indicated at its January policy-setting meeting that rates would likely be kept on hold if inflation showed signs of subsiding.

But the IMF expects RBI to continue raising its policy interest rates and also expects India’s consumer price index to remain near double digits well into the next year driven by food prices.

“Underlying inflation pressures remain potent, which was evident from the jump in the input price component of the PMI survey. This will keep RBI hawkish and likely compel it to raise rates a bit further this year,” said Eskesen.

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