Vivek Mishra

Solid Demand Lifted October Factory Growth To Eight-month High: PMI

With firms gearing up for improvements in demand, it looks like manufacturing activity will continue to expand throughout the Q3 of FY22 should the pandemic remain under control, the survey said.

Bengaluru: Factory activity expanded at its quickest pace in eight months in October on strong demand and increased output, though another surge in the cost of raw materials cast a shadow over the outlook, a private survey showed.

Monday’s data pointed to an extended business recovery in Asia’s third-largest economy from the pandemic-induced slump and, alongside rising price pressures, may boost views the Reserve Bank of India (RBI) will tighten monetary policy earlier than expected, like other major central banks.

The Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, jumped to 55.9 in October from September’s 53.7, the highest since February, and remaining above the 50-level separating growth from contraction for a fourth straight month.

“With companies gearing up for further improvements in demand by building up their stocks, it looks like manufacturing activity will continue to expand throughout the third quarter of fiscal year 2021-22 should the pandemic remain under control,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“Upbeat business confidence and projects in the pipeline should also support production in the coming months.”

Also read: Explained: Here’s Why Modi Govt’s High Taxes on Fuel Don’t Just Affect 5% Of India

The latest survey showed the new orders sub-index, a proxy for domestic demand, rose to 58.7 last month, its highest in seven months. Foreign demand also expanded at its quickest pace since July, encouraging firms to raise output.

However, firms shed jobs for a third straight month.

“Despite the overall improvement in operating conditions, jobs failed to increase. This was often linked to sufficient capacity to deal with current workloads and government norms surrounding shift work,” De Lima said.

Last month, input costs increased at the strongest pace in nearly a decade, pressing manufacturers to pass on some of the burden to customers. That suggests overall inflation will remain elevated over the coming year.

The recent surge in global crude oil prices to near $85 a barrel is also making policymakers and consumers nervous given India meets over 80% of its oil needs through imports.

But the RBI is not expected to raise interest rates until at least the beginning of next financial year, in April-June 2022, a separate Reuters poll showed.

(Reuters)

COVID-19 Toll on Indian Economy Deepens, Jobs Crisis to Worsen: Poll

A slow vaccine rollout may cause the economy to average just 6.8% growth this fiscal year after its deepest ever recession last year.

Bengaluru: India’s economic outlook has weakened again, albeit slightly, with worst-case scenario forecasts suggesting the toll from the coronavirus pandemic could be much deeper, stoking fears the job crisis may worsen over the coming year, a Reuters poll found.

Renewed restrictions to curb the current coronavirus wave have stalled economic activity, leaving many millions without work and pushing economists – who have broadly been bullish – to downgrade their views for the second time since early April.

The May 20-27 poll showed the outlook for the current quarter was lowered to 21.6% annually, and to 9.8% on average for this fiscal year, down from 23.0% and 10.4% respectively a month ago. The economy was then forecast to grow 6.7% next fiscal year, compared to 6.5% predicted previously.

While the consensus pointed to healthy growth figures later this year, all 29 economists, in response to an additional question, warned the outlook was either “weak and prone to further downgrades” or “fragile, with a limited downside”.

None expected a “strong recovery, followed by an upgrade”.

“Recovery in India was strong in the months before the second wave. This leads us to believe the recovery can rebound quickly after the number of new infections have come down. But vaccination implementation needs to pick up pace in order to have an effect this year,” said Wouter Van Eijkelenburg, an economist at Rabobank.

“Therefore new surges of the virus hang above recovery like the sword of Damocles. Until a large share of the population is vaccinated there remains this downside risk of new waves and subsequent lockdowns hampering the recovery.”

Underscoring concerns that a slow vaccine rollout may make a bigger dent in the economy, the consensus showed in a worst-case scenario the economy would average just 6.8% growth this fiscal year after its deepest ever recession last year.

“Let’s hope (the situation) doesn’t go there. If it does and we do have another wave… after this one, maybe the government will learn some lessons – that it is better to lock down the economy sooner, rather than later,” said Gareth Leather, senior Asia economist at Capital Economics.

“The threat of further waves will hang over the economic outlook so long as India’s vaccination progress remains lackluster.”

India’s unemployment rate soared to a near one-year-high of 14.73% in the week ending May 23, according to the Center for Monitoring Indian Economy (CMIE), reflecting the impact of the economic slowdown.

When asked if there was a risk that India’s unemployment situation could worsen over the coming year, more than 85%, or 25 of 29 respondents, said it was high, including four who said very high. The remaining four said the risk was low.

“There is going to be a significant demand shock to the economy, some of that could be permanent demand destruction, thereby pushing more out of the jobs market and keeping the unemployment rate elevated over the coming year,” said Prakash Sakpal, senior Asia economist at ING.

The Reserve Bank of India has kept its monetary policy loose, including several liquidity measures, and was expected to stay on an easy course for this fiscal year.

While calls have increased for more fiscal stimulus to speed up the economic healing, the government has limited space to respond to challenges posed by the health crisis.

“If the Indian government increases spending… it will probably prevent a loss in economic output in the short term, but this simultaneously puts more pressure on the sustainability of debt in the longer term, essentially mortgaging their future,” said Rabobank’s Eijkelenburg.

“India’s policymakers find themselves between a rock and a hard place when it comes to decisions on additional fiscal stimulus.”

(Reuters)

India’s Services Sector Loses More Steam in December, Job Cuts Resume

A spike in COVID-19 cases was reported as a key factor restricting growth of new work intakes among service providers, curbing the rise in output and leading to increased business uncertainty, said the survey.

Bengaluru: Growth in India’s dominant services industry continued to lose momentum in December as a resurgence in coronavirus infections weighed on new business and employment, a private survey showed on Wednesday.

Asia’s third-largest economy has been gradually recovering from a coronavirus-induced recession but is not expected to return to pre-pandemic levels soon, especially within the service industry – the engine of economic growth and jobs in the country.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 52.3 in December from November’s 53.7 but held above the 50-mark separating growth from contraction for a third straight month.

“A spike in COVID-19 cases was reported as a key factor restricting growth of new work intakes among service providers, which in turn curbed the rise in output and led to increased business uncertainty about the outlook,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“It is clear that the early part of 2021 will continue to be challenging and we’re looking at a sustainable recovery and some return to normality once COVID-19 vaccines become available.”

India has the second-highest number of coronavirus infections in the world. On Sunday it approved two coronavirus vaccines for emergency use but it could take years to vaccinate over 1.3 billion people with its rudimentary healthcare system.

Although a sub-index monitoring overall demand ended a rough 2020 in growth territory, it declined to a three-month low as night curfews in some major cities depressed demand.

Also read: World Economies: Who Has the Advantage and Who Is Set to Lose in 2021?

Demand from abroad remained firmly in contraction territory as many countries reimposed lockdown measures to contain a fresh spike in COVID-19 cases.

Weak demand forced firms to lower their prices despite an uptick in input costs, which increased at the quickest pace since February.

Meanwhile, job market conditions darkened, slipping back into contraction, although the pace of job shedding remained minimal.

“Given the damaging impact of the pandemic on the service economy, some companies are facing financial difficulties, which is preventing staff hiring. December saw the ninth round of job shedding in ten months,” De Lima added.

Optimism about the next 12 months faded at the end of the year as firms were concerned about the uncertainty surrounding the pandemic, the rupee’s depreciation and rising inflationary pressures, the survey showed.

Despite a pick-up in factory activity, sluggish demand for services meant the India composite PMI fell to a three-month low of 54.9.

(Reuters)

Indian Services Industry Lost Some Steam in November

Growth constraints, travel restrictions and low footfall as consumers opt to stay home and avoid catching the disease remained key themes of the services PMI.

Bengaluru: Growth in India’s dominant services industry lost some momentum in November as demand weakened, a private survey showed on Thursday, clouding hopes of a quick economic recovery from the COVID-19 pandemic’s blow.

Asia’s third-largest economy, which fell into recession last quarter for the first time since at least 2012, is expected to recover only modestly early next year and won’t reach pre-COVID-19 levels any time soon.

The Nikkei/IHS Markit Services Purchasing Managers’ Index (PMI) dipped to 53.7 in November from October’s 54.1 but still held well above the 50-mark separating growth from contraction for a second month.

India’s manufacturing recovery also faltered last month as coronavirus fears weighed on demand and output.

“Output and sales across the private sector have held up well, but there were some signs of growth losing momentum among goods producers and service providers,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“Growth constraints, travel restrictions and low footfall as consumers opt to stay home and avoid catching the disease remained key themes of the services PMI.”

A composite PMI, which includes both manufacturing and services, fell to 56.3 last month from October’s 58.0, and while a sub-index tracking overall demand for services was above 50 for a second month the pace of expansion softened from October.

Demand from abroad remained firmly in contraction territory as many countries reimposed lockdown measures to contain a fresh spike in COVID-19 cases.

Still, services firms were far more optimistic about the year ahead – largely on hopes a vaccine for COVID-19 would be rolled out and market conditions would normalise – and businesses ended an eight-month streak of job shedding.

However, both input costs and prices charged rose in November, suggesting the economy is struggling to climb out of a period of low growth and high inflation.

“Low interest rates aimed at mitigating the negative impacts of COVID-19 on the economy and the latest rise in services employment are supportive factors for domestic demand. However, a pick-up in inflationary pressures could threaten the recovery,” De Lima added.

(Reuters)

India’s Services Activity Grows in October for First Time in Eight Months

Overall demand expanded for the first time since February but new export business remained firmly in contraction territory as restrictions imposed across the world due to the COVID-19 pandemic hammered foreign demand.

Bengaluru: Activity in India’s dominant services industry, expanded for the first time in eight months in October as demand surged, but pandemic-hit firms continued to cut jobs, a private survey showed on Wednesday.

The findings, coupled with a similar survey on Monday which found Indian manufacturing growth expanded at its fastest pace in over a decade, suggest a recovery in Asia’s third-largest economy is under way.

The Nikkei/IHS Markit Services Purchasing Managers’ Index (PMI) climbed to 54.1 in October from September’s 49.8. It was the highest reading since February and comfortably above the 50-mark separating growth from contraction.

“It’s encouraging to see the Indian service sector joining its manufacturing counterpart and posting a recovery in economic conditions from the steep deteriorations caused by the COVID-19 pandemic earlier in the year,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“Service providers signalled solid expansions in new work and business activity during October. They were also more upbeat about the outlook, though hopes of output growth in the year ahead were pinned on a COVID-19 vaccine.”

A sub-index tracking overall demand showed it expanded for the first time since February but new export business remained firmly in contraction territory as restrictions imposed across the world due to the COVID-19 pandemic hammered foreign demand.

That led firms to cut jobs for the eight straight month, the longest streak on record.

“Survey participants indicated that workers on leave had not returned and that a widespread fear of COVID-19 contamination continued to restrict staff supply,” De Lima added.

The composite PMI, which includes both manufacturing and services, rose to 58.0 last month, its highest since January 2012, from September’s 54.6.

Although service providers remained optimistic about the year ahead – optimism strengthened to a seven-month high last month – the expectations index remained well below the long-term average.

Input costs increased at the quickest pace since February but firms absorbed much of the jump to win business amid growing concerns that rising coronavirus infections could halt the nascent recovery in the services industry, which contributes over 60% to the country’s gross domestic product.

India has the world’s second-highest coronavirus caseload at well over eight million, behind only the US. New daily cases in India have been falling since September, but experts warn infections could rise again during the festival season.

(Reuters)

Coronavirus Disruptions See India’s Services Activity Contract in March

That mirrors a sharp deceleration in global activity as the coronavirus pandemic paralyzes economies, with evidence mounting that the world is sliding into recession.

Bengaluru: India’s dominant services sector, the lifeblood for economic growth and jobs, contracted in March as new business and export demand fell sharply as the coronavirus pandemic wreaked havoc globally, a private survey showed.

Prime Minister Narendra Modi ordered India’s 1.3 billion people to stay home and shut shops and businesses selling non-essential goods for 21 days from March 25 to try and contain the virus spreading, suggesting April’s downturn will be more severe.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell sharply to a five-month low of 49.3 in March from February’s seven-year high of 57.5, below the 50-mark separating growth from contraction for the first time since October.

“Strong growth momentum seen so far in 2019 was halted in March as demand conditions deteriorated, particularly overseas, leading to a reduction in business activity,” Joe Hayes, an economist at IHS Markit, said in a release.

That mirrors a sharp deceleration in global activity as the coronavirus pandemic paralyzes economies, with evidence mounting that the world is sliding into recession.

A manufacturing survey last week showed a cooling in growth which combined with a contracting services sector dragged the composite PMI to a five-month low of 50.6 last month.

The outlook looks grim, with an index tracking overall demand for services falling to 48.5 in March, a 25-month low.

Also Read: What Can Be Done to Ensure the Wheels Don’t Come off the Indian Economy?

Adding to concerns, new export business – a proxy of foreign demand – fell at its fastest rate since the sub-index was introduced in September 2014.

A strong service sector is crucial for Indian growth as it contributes over 60% to the country’s gross domestic product. If the lockdown is extended, economists say it could drag Asia’s third-largest economy to either no growth or a contraction this quarter.

“Clearly the worse is yet to come as nationwide store closures and prohibitions to leave the house will weigh heavily on the services economy, as has been seen elsewhere in the world. Pressure now fully lies on the government to combat the economic challenges the lockdown will cause,” Hayes added.

Like their peers elsewhere, policymakers in India have stepped up fiscal and monetary stimulus to mitigate the economic fallout from the health crisis.

Late last month, the Reserve Bank of India slashed interest rates by 75 basis points to 4.40% in an emergency move and the government announced a Rs 1.7 trillion ($22.4 billion) stimulus.

Despite the support measures, firms appear unconvinced the services sector will recover from the slump anytime soon, the survey showed.

Optimism about the next 12 months was the lowest in five months, leading services firms to reduce their workforce and pushing the employment sub-index to its lowest since August 2017.

The Modi government is already under pressure amid massive job cuts by smaller businesses due to the lockdown.

On the price front, growth in both input costs and prices charged weakened in March, suggesting retail inflation could slow further and give the RBI more scope to cut interest rates further.

(Reuters)

Reuters Poll: RBI Will Keep Inflation Rates on Hold Till Mid-2019

An increase in the global oil price, overestimated government expenditure and devaluation of the rupee could cause the RBI to hike interest rates.

Bengaluru: A three-month slide in India‘s inflation rate likely ended in April due to higher energy prices, a Reuters poll found, which could intensify pressure on the central bank to hike interest rates.

A jump in the global price of oil, India‘s costliest import, plus overestimated government expenditure and a sharp weakening in the rupee could cause the Reserve Bank of India to review its long-standing neutral stance.

The median forecast in the poll of nearly 30 economists was for April‘s annual rate of consumer inflation to rise to 4.42% from March’s 4.28%.

If that is the case, April will be the sixth straight month of inflation above the RBI’s 4% medium-term target.

The highest forecast was 5.50%. One economist saw the pace as below the RBI’s target, at 3.88%, due to eased food prices.

Food and beverage inflation, accounting for nearly half of the CPI basket, fell to 2.81% in March, well below 2017’s high of 4.96 %, in December.

Teresa John, an economist at brokerage Nirmal Bang, forecasts April inflation at 4.45 %. While that is below the RBI’s 4.7-5.1% target for April-September, “rising oil prices and core inflation will be a concern,” she said. “It will not be very long before the central bank raises rates,” John predicted.

Minutes from RBI’s Monetary Policy Committee April 4-5 meeting showed members flagged multiple concerns, including an increase in minimum support prices for farmers and crude oil prices.

On Thursday, oil prices hit multi-year highs on prospects for renewed US sanctions against Iran amid an already tightening market.

A hike by October?

“We think that the recent spell of softer inflation has now come to an end,” said Shilan Shah, senior India economist at Capital Economics, adding that interest rate hikes are likely “perhaps by October but we wouldn’t rule out an earlier move”.

According to a Reuters poll in mid-April, the RBI will keep rates on hold until the first half of 2019.

The Reuters poll on inflation also showed expectations that growth in industrial output likely slowed to 5.9% in March, from February’s 7.1%.

That slowdown was seen primarily due to sluggishness in the output of eight core industries, which account for about 40% of overall production.

India‘s annual infrastructure output growth slowed to a three-month low of 4.1% in March, due to by slower growth in coal, steel and electricity production, according to government data.

“A cyclical recovery is under way, but rising oil prices and political uncertainty suggest a higher risk premium ahead,” Nomura economists said.

(Reuters)

Inflation Rises For the First Time in Seven Months as Food Prices Climb Higher

According to the poll of over 25 economists, the inflation rate for February rose to a three-month high of 3.58% from 3.17% in January.

A customer shops at a grocery store in Chandigarh November 12, 2009. Credit: Reuters/Ajay Verma/Files

Indian inflation likely picked up for the first time in seven months in February as rising food prices began to bite, but it remained below the central bank’s medium-term target, a Reuters poll found.

Prime Minister Narendra Modi’s ban on high-value bank notes in November hurt demand in the largely cash-driven economy and consumer price inflation has since been below the Reserve Bank of India’s 4% target.

According to the poll of over 25 economists, the inflation rate for February rose to a three-month high of 3.58% from 3.17% in January.

“The food component is largely seen responsible for the expected upswing in inflation trajectory, with core inflation also likely to pick up pace faster than what it has been in the last couple of months,” said Anjali Verma, chief economist at PhillipCapital India.

Among the food components, fruit and vegetable prices, which have been contracting for the last six months, are largely expected to contribute to the rise in February, she added.

The government’s demonetisation drive removed 86% of the currency in circulation, hitting companies, farmers and households.

Factory and services activity felt the brunt of the currency ban, contracting in the month after the move was announced.

Since then, demand has slowly recovered and the services industry, which constitutes around 60% of India’s gross domestic product, returned to growth in February.

India’s economy grew 7% in the October-December quarter of 2016, beating more modest expectations in a Reuters poll for 6.4% but slower than the July-September quarter reading of 7.4%.

The central bank cited risks of high inflation when it left the benchmark lending rate unchanged at 6.25% and changed the policy stance to “neutral” from “accommodative” in last month’s meeting.

Wholesale price inflation is also expected to have picked up last month, to 5.90% from 5.25 percent in January, according to the poll. That would be its highest reading since May 2014.

Industrial output likely accelerated 0.5% in January from a year ago after falling 0.4% in December.

(Reuters)