Manufacturing PMI falls to 7-month low in Sept

The PMI fell to 51.2 in September, down from 52.3 in August

Growth in the country’s manufacturing activity declined to a seven-month low in September as expansion in new business and output moderated, showed the widely-tracked Nikkei purchasing managers’ index (PMI).

Meanwhile, price pressure came down on both input and output sides, justifying the Reserve Bank of India’s (RBI) move to cut the repo rate by 50 basis points (bps) on growth concerns. Companies shed jobs as manufacturers struggled due to weaker business inflows.

The PMI for manufacturing, compiled by Markit Economics, eased to 51.2 points in September as against 52.3 the previous month. However, the September PMI, based on a survey of 300 industrial companies, also marked the 23rd straight month of expansion. A reading over 50 signals growth and one below it a contraction.

“Despite having been supported by sustained increases in new work, growth of Indian manufacturing production in September was weighed down by a difficult economic climate,” said Pollyanna De Lima, economist at Markit and author of the report.

The economy expanded by seven per cent in the first quarter (April-June) of the financial year. The government has lowered its annual growth target to 7.5-8 per cent from the earlier 8.1-8.5 per cent. However, the economy is now expected to pick up pace, with banks expected to lower lending rates to pass on this week’s repo rate cut benefit to consumers, ahead of the festival season. The RBI cut the repo by a larger than expected 50 bps, to a four-and-a-half-year low of 6.75 per cent early this week, with inflation hitting historic lows. The central bank also lowered the growth estimate for the year to 7.4 per cent, from 7.6 per cent.

State Bank of India has announced a 40 bps cut in its lending rate from Monday, as have a few other lenders.

In fact, De Lima said despite a fall in growth, factory production would give a greater push to gross domestic product in the July-September quarter, compared to what it did in the previous three months.

“The region’s growth prospects for the July-September quarter are encouraging. According to PMI data, the manufacturing sector looks set to provide a stronger contribution to GDP than it did in the April-June quarter,” she added.