This column had pointed out last month that while the global economy continued to contract in December, the rate of contraction had slowed.
The Indian manufacturing sector, though, had continued to contract at a record pace in December, with the ABN Amro Purchasing Managers’ Index, or PMI, falling to 44.4, compared with 45.8 in November.
But PMI for India has rebounded to 46.7 in January, which indicates the pace of contraction has slowed. In fact, the reading would have been even better except for the truckers’ strike.
The big question is: Has a bottom been formed?
Not really, says Gaurav Kapur, senior economist with ABN Amro Bank in Mumbai. “Since the PMI measures month-on-month changes, the fact remains that the economy continues to contract,” said Kapur, who expects a bottom to be formed when the economy stops further contraction, a state of affairs he expects in the first quarter of the next fiscal year.
Also See Rebound in PMI (PDF)
Interestingly, the finished goods index was at 49.8 in January, which seems to show at first glance that inventory destocking has stopped. But the probable explanation is that there were difficulties in delivering goods due to the truckers’ strike that bloated inventories.
Nevertheless, the finished goods sub-index should be watched closely as any stoppage in destocking is a sign that a bottom has been formed.
A negative signal is that the employment sub-index, at 47.8, is almost at the same level as in December, and indicates that employment continues to contract at around the same pace. That will mean lower demand in future.
Incidentally, China’s PMI reading improved to 42.2 in January, from 41.2 in December and 40.9 in November. But the employment sub-index fell to 45.01 in January, from 45.24 in December, confirming the reports of large-scale retrenchment of migrant workers.
As the chart shows, Indian manufacturing is still relatively better off. While some economies have shown a bottoming out of PMI, the contraction of global manufacturing continued to deepen in January.
Graphics by Ahmed Raza Khan / Mint
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