May factory output seen at three-month low of 1.6%

 

Factory production growth probably eased to a three-month low in May dampened by weak infrastructure sector output, as weak global demand and consumption weigh on a recovery in Asia's third-largest economy, a Reuters poll found.

 

The median forecast of 23 economists showed output at factories, mines and utilities grew an annual 1.6% in May, after an upwardly revised 2.3% in April.

 

Although the consensus estimate showed growth in industrial output for the fifth consecutive month, the pace is a far cry from the near 10% seen between late 2009 and 2011.

 

"Even though it looks like production has been slightly up, if you look within the core sector, the breakdown indicates it is still pretty weak," said Hanna Luchnikava, an economist at IHS Global Insight.

 

Output in the eight key infrastructure industries, also known as the core sector and which makes up almost 40% of the index of industrial production, slowed to an annual 2.3% in May, from 2.4% in April.

 

Recent data has shown persistent weakness in the Indian economy, which will not support the fragile recovery seen in the final three months of the previous fiscal year. The economy grew at its slowest annual pace in a decade in the fiscal year that ended in March.

 

Indeed, private surveys of manufacturing purchasing managers have suggested sluggish growth in the sector over the past few months.

 

The HSBC Manufacturing PMI survey showed activity in Indian industries flirted with the 50 mark that separates growth from contraction in May and June, even though it has held above that level for over four years.

 

"Generally the momentum remains weak and some of the other indicators like auto sales and PMI have been pretty subdued and there is no real change in the near future," said Siddhartha Sanyal, chief India economist at Barclays Capital in Mumbai.

 

Car sales -- a proxy for domestic consumer demand -- fell for the seventh straight month in May, according to data from the Society of Indian Automobile Manufacturers (SIAM). The overall fall in the 2012/13 fiscal year ending in March was the first in a decade.

 

Capital goods output, a key barometer of investment, rose an annual 1% in April, but consumer demand is expected to remain tepid and weigh on the recovery in Indian factories.

 

Weak global demand has also hurt Indian factories as annual exports in May fell for the first time in five months