Bangalore / New Delhi: India’s manufacturing growth eased in August as the pace of new orders cooled following a slowdown in exports, underlining expectations that economic expansion has peaked this year.
The HSBC Markit purchasing managers’ index, based on surveys of 500 companies in Asia’s third-largest economy, fell to 57.25 in August from 57.6 in July.
It marked the 17th successive month of expansion, although at a slower pace. New orders growth was still strong, but the survey showed the pace was weakening.
Separate data showed July exports rose 13.2% from a year earlier, although the pace was much slower than the 30% recorded for June.
A string of weak US data is raising concerns about the global recovery and in the case of Asia, questions about whether central banks will keep raising raising interest rates aggressively.
“I don’t expect the RBI to raise rates in September mid-policy review as demand is not that strong and also there is continuing uncertainty over global recovery,” DK Joshi, principal economist at Crisil in Mumbai, said.
A slowdown in manufacturing activity comes on the heels of figures showing that industrial output growth in June eased to its slowest pace in 13 months. Analysts forecast moderate growth in coming months as central bank policy tightening bites.
The Reserve Bank of India has raised rates four times since mid-March to stamp down on inflationary pressures and has said it may have to give precedence to containing inflation over other policy objectives.
The RBI is widely expected to raise policy rates by another 50 basis points by the end of 2010, and some bond dealers expect a 25 basis points increase at the next policy review on 16 September.
The wholesale price index, India’s main inflation gauge, rose 9.97% in July from a year earlier, its slowest pace in six months, but the HSBC report suggested pressures remain.
“Inflation continues to threaten as firms report significant increases in input prices. The RBI is most likely to be wary of these price pressures, and we do not see the central bank pausing at this stage,” said Frederic Neumann, co-head of Asian Economics Research at HSBC.
The economy grew 8.8% in the quarter through June from a year earlier, its fastest in nearly three years, and is expected to grow 8.5% in the current fiscal year to end-March.
However, high inflation could threaten growth by eating into purchasing power. Private spending fell in the April-June quarter from a year earlier, a concern as the government’s spending to support recovery declines.
The trade data showed that imports in July rose 34.3% from a year earlier, widening the trade deficit to $12.93 billion, the biggest since September 2008.
The deficit for April-July rose about 39% from a year earlier to $43.6 billion. The deficit is expected to reach $120 billion in the current fiscal year, the government said last month.
The current account deficit widened to $13 billion in the March-quarter, the biggest since 1981, as the merchandise trade deficit has deteriorated.