BackManufacturing new orders supported by external demand
Strong external demand, particularly for consumer goods, buoyed the export orders index, primarily because of currency competitiveness
Premium
Growth in new export orders rose to a three-year high at 56.8, up for the fifth consecutive month, although the HSBC manufacturing Purchase Manager’s Index (PMI) slowed to 51.3 in March from a one-year high of around 52.5 in February.
The latest increase in new work from abroad was the strongest since April 2011, on the back of improved demand conditions in key export markets. Clearly, as the chart shows, there’s a disconnect between export and domestic growth, with the latter much more fragile. The big question is: with the rupee strengthening 10% in the past seven months, will the growth in export orders be sustainable?
Strong external demand, particularly for consumer goods, buoyed the export orders index, primarily because of currency competitiveness.
Leif Eskesen, chief economist for India and Asean at HSBC Global Research, said, “India’s currency competitiveness should be seen in light of domestic inflation and exchange rate. While the rupee has strengthened, there has been some easing of inflation." Consumer price inflation declined to an over two-year low of 8.1% and wholesale price inflation eased to 4.68% in February.
According to the February trade data, India’s exports fell 3.7% year-on-year for the first time in eight months because of softness in demand from US, subdued growth in Europe and a hard landing in China. The decline in exports in February can be attributed to adverse weather conditions in the US, said Sonal Varma, economist from Nomura. Varma expects export growth to pick up in the second half of the year.
But with the manufacturing PMI showing that output and new orders declined in March, the weakness of the recovery is evident.
“India is a domestic driven economy; unless domestic demand takes off and leads to a cyclical pick-up of manufacturing activity, recovery is likely to prove protracted," said Eskesen.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
