New Delhi: India’s factory output growth slipped to a four-month low of 2% in June, signalling a broad-based demand slowdown and further signs of stress in the economy.

Data released by the National Statistical Office (NSO) on Friday showed manufacturing and mining sectors tottering below the 2% level. Electricity, however, grew at a robust pace of 8.2% due to rising summer demand.

Analysis of the user-based sectors showed that the slowdown in the economy has gripped most sectors, except intermediate goods, which grew at 12.4% in June. Capital goods, infrastructure goods and consumer durables all contracted in June, while primary goods almost remained flat, growing at a feeble 0.5%.

Only eight out of the 23 industry groups in the manufacturing sector showed growth in June.

Madan Sabnavis, chief economist, CARE Ratings, said the high base effect in the coming months is set to statistically pull down IIP growth further. “Hence, for the full year, it looks unlikely that IIP can go beyond the 4-5% range, unless there is a recovery in the second half," he added.

On Wednesday, the Reserve Bank of India pared its growth projection for 2019-20 to 6.9% from its June forecast of 7%, while reducing policy rates by 35 basis points. It maintained that risks to growth are tilted toward the downside, with domestic economic activity remaining weak, while the global slowdown and trade tensions have intensified.

“Evolving trends do not bode well for the pace of GDP growth in the first quarter of 2019-20, which in conjunction with range-bound retail inflation, suggest a substantial likelihood that another rate cut is in the offing," said Aditi Nayar, principal economist, Icra Ratings.

A slew of high-frequency indicators have been pointing to a sharp slowdown in demand, both in rural and urban India. The auto sector is going through its worst phase in decades due to the prolonged slump in demand, leading to massive job losses.

Wholesale dispatches at Maruti Suzuki India Ltd, the country’s largest passenger vehicle manufacturer, slumped 36.3% year-on-year in July, its sharpest decline in the past two decades.

A series of factors, including government incentives for electric vehicles, higher insurance costs, volatile stock markets and a liquidity squeeze in a slowing economy, have slammed the brakes on demand for new vehicles.

Construction activity indicators, too, slackened, with contraction in cement production and slowdown in finished steel consumption in June.

Import of capital goods, a key indicator of investment activity, also contracted during the month.

Merchandise exports contracted, weighed down by the subdued performance of gems and jewellery, petroleum products, rice, engineering goods and cotton.

Close