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Manufacturing Sector: Slow but Steady growth

A slump in new orders and exports led to easing manufacturing growth in the month of August, which also highlights concern that economic expansion has peaked for the fiscal.
 Manufacturing Sector: Slow but Steady growth
 
 

A slump in new orders and exports led to easing manufacturing growth in the month of August, which also highlights concern that economic expansion has peaked for the fiscal.

The HSBC Market Purchasing Managers’ Index (PMI) that surveys 500 companies fell to 57.25 in August from 57.6 in July, according to a statement on Tuesday. A reading of above 50 indicates expansion. August has been marked as the 17th successive month of expansion, the data says that growth in manufacturing has been slow in compared to the growth rate in the previous months.

“There is still plenty of fire power to come from industry even though year-on-year growth may not look as stellar as in the recent past,” said Frederic Neumann, co-head of Asian economic research at HSBC in the statement.

The index of new factory orders declined to 62 in August from 62.8 in July and exports slipped to 55.5 from 57.4, according to the PMI.

Meanwhile, government data for July also revealed the fact that there is a slowdown in export growth. Exports in July grew by13.2%, lower than the 30% growth in June.
US data is raising concerns about the global recovery, while the easing of manufacturing growth and inflation in India is raising doubts whether the central bank will continue hiking interest rates aggressively.

Experts are of the opinion that there will be a moderate growth in coming months, despite the economy registering an 8.8% growth in the first quarter of the fiscal. “There could be some slowing down in the second quarter because manufacturing and industrial sector may not do as well in the second quarter as it did in the first quarter because there is slowing down on account of base effect and some other factors,” said C Rangarajan, chairman PM’s Economic Advisory Council.

The Reserve Bank of India has raised rates four times since mid-March to stamp down on inflationary pressures and has said it may have to give precedence to containing inflation over other policy objectives. It is widely expected to raise policy rates by another 50 basis points by the end of 2010.

“Inflation continues to threaten as firms report significant increases in input prices. The RBI is most likely to be wary of these price pressures, and we do not see the central bank pausing at this stage,” said Mr Neumann.
 
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