A day after the gross domestic product (GDP) data for the June quarter showed a slowdown in consumption and investment demand growth, the HSBC Manufacturing Purchasing Managers Index (PMI) posted a reading of 53.2 in August, lower than July’s reading of 55.4, an indication that while expansion in manufacturing continues, it’s losing a bit of momentum.
The new orders sub-index was also lower than in July, another pointer that the pace of recovery is getting slower.
Is this a pause that refreshes, or an ominous warning of a change in trend? Robert Prior-Wandesforde, senior economist at HSBC, believes it is the former, because “there is still plenty more in the way of fiscal and monetary stimulus effects to come through to the economy”.
That may be so, but the June quarter GDP numbers did indicate that the stimulus was losing some of its strength. It remains to be seen to what extent stimulus measures will offset the impact of the drought.
Graphics: Sandeep Bhatnagar / Mint
The PMI numbers show that while the index of input prices rose further in August, the index for output prices actually slipped a bit. That’s not good for profit margins, although it does show that manufacturers are not in a position to pass on price increases. Add to that the prospect of higher interest rates in the not-too-distant future.
On the other hand, the data on external commercial borrowings (ECB) points to higher project imports.
The slowdown is underlined by the data on non-oil imports for July. As the chart shows, the fall in non-oil imports decelerated a bit during June, but gained pace again in July. Part of the reason for the fall in imports, of course, is lower prices.
But if the ECB approvals are anything to go by, non-oil imports should pick up soon.
Perhaps all that the lower PMI for August is signalling is that recovery is unlikely to be V-shaped.
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