Manufacturing PMI dips to 7-month low

#GS3 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development, and Employment.


News info:

  • India’s factory activity grew at its weakest pace in seven months in March as renewed lockdowns to curtail a resurgence in COVID-19 cases dampened domestic demand and output, a private survey showed, forcing firms to cut headcount again.
  • Last week, the Indian government advised States to try and control the rapid spread of the virus. Tighter restrictions on activity suggest factories could be in for a tough April.

Explanation:

  1. The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, declined to a seven-month low of 55.4 last month from February’s 57.5 but remained above the 50-level separating growth from contraction for an eighth straight month.
  2. Despite foreign orders growing at a faster pace in March, a sub-index tracking overall demand declined to its lowest since August 2020. Output also grew at its weakest pace in seven months.
  3. Survey participants indicated that demand growth was constrained by the escalation of the COVID-19 pandemic, while the rise in input buying was curtailed by an intensification of cost pressures.
  4. With COVID-19 restrictions expanded and lockdown measures re-introduced in many States, Indian manufacturers look set to experience a challenging month in April

Conclusion:

  1. Although Asia’s third-largest economy was predicted to grow at a faster pace this fiscal year than previously thought, according to a Reuters poll published last week, a significant majority of economists said a surge in coronavirus cases was the biggest risk to the outlook.
  2. After a year-long spree of job cuts, factories intensified the rate of lay-offs to its strongest in six months in March.
  3. Both input and output prices increased at a slower pace last month, signaling overall inflation that accelerated to a three-month high in February might ease and stay within the RBI’s inflation target of 2-6%.
  4. That would help the central bank maintain its accommodative policy stance to support economic growth but optimism about the year ahead waned.
  5. While predictions that the vaccination program will curb the disease and underpin output growth in the year ahead meant that business confidence remained positive, growing uncertainty over the near-term outlook due to a rise in COVID-19 cases dragged sentiment to a seven-month low.

Purchasing Manager's Index:

PMI is an indicator of business activity- in the manufacturing and services sectors.

Calculation of PMI

It is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.

It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

  • The PMI is a number from 0 to 100.
  • PMI above 50 represents an expansion when compared to the previous month;
  • PMI under 50 represents a contraction, and
  • A reading at 50 indicates no change.
  1. If the PMI of the previous month is higher than the PMI of the current month then it represents that the economy is contracting.
  2. The PMI is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.

Purpose: 

To provide information about current and future business conditions to company decision-makers, analysts, and investors. As the official data on industrial output, manufacturing, and GDP growth comes much later, PMI helps to make informed decisions at an earlier stage.

Source: The Hindu

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