It sometimes pays to be an insular economy with a large domestic market. At a time when trade disruptions are taking a toll on the more globalised manufacturing sectors of several countries, manufacturing in India is still expanding. That is the message from the manufacturing Purchasing Managers Indices (PMIs) for July.
The accompanying chart has the details. A reading above 50 denotes expansion from the previous month, while one below 50 indicates contraction. The PMI readings are seasonally adjusted.
The chart shows that India is one among a handful of countries whose manufacturing sectors are still expanding. Indeed, the July reading is better than the June one, implying an improvement in manufacturing conditions.
In sharp contrast, the US manufacturing PMI, although showing expansion, was the lowest since September 2009, the Eurozone manufacturing sector contracted at its fastest pace since late 2012, in Japan business conditions in manufacturing deteriorated for the third successive month while the global manufacturing PMI for July signalled contraction for the third straight month and fell to its lowest level since October 2012.
The chart shows that the manufacturing sector in Vietnam is doing relatively well, primarily because it has benefited from a re-location of industries from China, a consequence of the US-China trade war.
On the IHS Markit India manufacturing PMI, Polyanna de Lima, principal economist at IHS Markit, said, ‘Following a slowdown in growth in the opening quarter of fiscal year 2019/2020, some momentum was regained in July. Measures for factory orders, production and employment improved in the latest month, although rates of expansion remained below trend. A similar pattern was evident for business confidence.’ The recovery was in the domestic market, with conditions in export markets turning softer. The press release said, ‘Consumer goods producers led the upturn in July for the third month in a row, although there was also a stronger improvement in business conditions at intermediate goods makers. The capital goods sub-sector dipped into contraction, with lower sales causing reductions in output and quantities of purchases, while job creation came to a halt.’ The evidence from the manufacturing PMIs is at odds with the slump in the auto sector and fears of a widespread slowdown in consumption.
That said, we need to keep a wary eye on the Services PMI for July, which will be out on August 5. The services sector is far larger than manufacturing in the Indian economy and it came in at 49.7 in June, indicating contraction from the previous month.
Do you think that the manufacturing PMI is the harbinger of a rebound or an anomaly? Write in with your views to manas.chakravarty@nw18.com
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