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Manufacturing PMI hits 3-month high of 52.7, govt sees demand picking up

Business Standard:  June 04, 2019

New Delhi: A rise in the purchasing managers' index (PMI) for manufacturing for May, along with low bond yields, low oil prices and a high rupee on Monday, gave the finance ministry enough indication to sense that high gross domestic product (GDP) growth is just round the corner.

The Nikkei PMI for manufacturing rose to 52.7 in May from 51.8 in April, pointing to the strongest improvement in the health of the sector in three months.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

The data came in a few days after official figures showed that GDP growth fell to a five-year low of 5.8 per cent in the fourth quarter of FY'19. This has also pulled down economic growth to 6.8 per cent for FY19, also a five-year low.

Meanwhile, the rupee ended at Rs 69,26, up 44 paise.

This prompted Finance Secretary Subhash Chandra Garg to tweet that high economic growth was not far off.

“A turnaround in demand and financing conditions (is) beginning very well. PMI manufacturing is at 52.7. Crude is moving towards 60 dollars (a barrel). Government bond yield has gone below 7 per cent. Spread for NBFCs/HFCs over government bond is narrowing. Rupee is firmly below 70 (against the dollar). (These are) sure signs of coming high growth,” Garg tweeted.

The PMI rose as companies lifted output amid strengthening demand conditions, leading to further job creation in the sector, said a commentary associated with the monthly survey.

“A revival in new order growth promoted a faster upturn in manufacturing production, as Indian firms sought to replenish inventories utilised in May to fulfil strengthening demand,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.

The upbeat mood among goods producers, coupled with a solid increase in new work, underpinned job creation in the sector.

"Employment has risen in each month since April 2018, with the latest expansion the most marked since February," the survey noted.

Indian goods producers were confident of a rise in output in the year ahead, with sentiment improving since April.

Expectations of pro-business public policies, marketing initiatives, projects in the pipeline and favourable economic conditions were among the reasons boosting optimism, the survey noted.

On inflation, the survey noted that price pressures remained relatively muted, with goods producers leaving selling prices unchanged on the back of a mild rise in overall cost burdens.

“When we look at the survey's over 14-year history, the sector is growing at a below-trend rate," Lima said, and added that “shortening the horizon to the last two years, May's increases in output, total order books and exports all outperformed”.

The latest data also comes ahead of the Reserve Bank of India's monetary policy meet. The Monetary Policy Committee (MPC), which decides on key interest rates, will hold a meeting on June 3, 4 and 6.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.