High interest rates and low business confidence affected India’s manufacturing sector, said a report by a United Nations body. India was the only exception to other developing countries which have witnessed robust growth in manufacturing, compared to industrialised nations.
Signalling that global recovery will be a long-drawn process, world manufacturing expansion slowed to 5.2 per cent in the second quarter of 2011 year-on-year from 7.5 per cent in the first quarter, said the report by United Nations Industrial Development Organization.
Compared to the slow pace of industrialised countries, developing countries posted a growth of 11.2 per cent in the second quarter of 2011, compared to the year-ago period, the report on manufacturing output said. The main drivers for manufacturing have been business investments and exports and, in some countries, increasing consumer demand.
Among developing countries, China’s manufacturing sector remained on the top slot with a growth rate of 14.3 per cent, compared to the second quarter of 2010, and a healthy 6.5 per cent compared to the first quarter of 2011. Other developing countries that did well in the manufacturing sector include Turkey (8.3 per cent), Argentina (8.5 per cent), Chile (7.8 per cent) and Peru (5.8 per cent).
However, manufacturing growth of other major developing economies such as Brazil, India and Mexico slowed in the second quarter and remained below five per cent. “A slowdown of India’s manufacturing growth seems to be related to successive increases in interest rates to combat inflation and a decline in business confidence,” the report said.
However, India's official figures showed that manufacturing grew 7.47 per cent in the second quarter of 2011 year-on-year. At the world level, the report said: “Expectations at the beginning of the year for a sustained recovery from the 2008 financial crisis were dampened by a reduction in the dynamism of global private consumption and international trade during the second quarter.”
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This was further fuelled by tightening of fiscal policy concerns about sovereign risks in some
European countries, leading to financial market instability and rising inflation, the report said. In industrialised countries, manufacturing output rose by a mere 2.7 per cent in the second quarter compared to 5.7 per cent in the first quarter, primarily because consumer spending did not seem to have offset the winding down of stimulus packages, fiscal consolidation and high commodity prices of the previous quarter, the report said.