Declining demand drives factory growth to a minimum of two years in October: report

BENGALURU: The growth of Indian manufacturing activity reached a minimum of two years in October, as new orders and production increased at a slower pace, dragging business confidence to its lowest point since early 2017, it showed a survey on Friday, which suggests that there is greater policy flexibility.

That reflects a recent sharp slowdown in global manufacturing activity, as a prolonged trade war between the United States and China wreaked havoc on business sentiment, investment and overall growth.

The INPMI = ECI index of Nikkei Manufacturing Purchasing Managers, compiled by IHS Markit, fell to 50.6 last month from September 51.4, confusing expectations in a Reuters survey of an increase to 51.8.

Anyway, it has remained above the 50-point threshold that separates the growth of the contraction for the 27th consecutive month, an uninterrupted race that has not been seen in about five years.

October PMI data showed a continuation of the weakness of the manufacturing sector in India, with sales growth softened to the slowest in two years, said Pollyanna De Lima, principal economist at IHS Markit.

The weakening of demand had a domino effect in the manufacturing industry, reducing rates of increase in production, employment and business sentiment.

The new order sub-index, a proxy for domestic demand , fell to 51.3 from September 52.3, its lowest level since October 2017. That pushed companies to slow the hiring pace to a minimum of six months, which is likely to raise concerns for the Narendra Modi government given that It is under pressure to create more jobs.

In addition, in another sign that the economy in crisis will take a while to recover, optimism fell in October to its weakest point shortly after a ban on high-value currencies in 2016 that affected the small and medium-sized day-to-day operations Business.

The recession in general Business activity and the lawsuit suggests that the Reserve Bank of India may need to soften the policy again, in addition to the 135 cumulative basis points for rate cuts delivered this year.

Certainly, the inflation indicator in the PMI survey indicated that the RBI has the margin for new political measures, as input prices declined for the first time in more than four years. While companies increased production costs at a faster rate compared to September, it is unlikely to push general inflation above the medium-term target of 4% of the central bank.