MANUFACTURING PMI SEES FASTEST GROWTH IN FIVE YEARS

Rate of job creation rose to its highest level since August 2012

The manufacturing sector ended 2017 on a strong note, with operating conditions in December improving at the strongest rate in five years, driven by significant increase in new orders, a monthly survey said. The Nikkei India Manufacturing Purchasing Managers' Index (PMI) rose to 54.7 in December from 52.6 in November, as growth was recorded across all the monitored categories — consumer, intermediate and investment.

The Indian manufacturing sector ended the year on a strong note, with operating conditions in December improving at the strongest rate in five years driven by significant increase in new orders, a monthly survey said.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to

54.7 in December, from 52.6 in November as growth was recorded across all three monitored categories — consumer, intermediate and investment.

This is for the fifth consecutive month that the index has come in above 50-point mark that separates expansion from contraction.

“Strong business performance was underpinned by the fastest expansions in output and new orders since December 2012 and October 2016 respectively,” said Aashna Dodhia, economist at IHS Markit and author of the report.

The uptrend was driven by stronger market demand from home and international markets, Dodhia added. Accordingly, Indian manufacturers upped their staffing levels at the end of the year. In fact, job creation accelerated to the strongest since August 2012, the survey said.

On the price front, Dodhia said July’s Goods and Services Tax (GST) continued to lead to greater raw material costs, with input cost inflation accelerating to the sharpest since April.

Moreover, as consumer spending recuperated, firms were restricted in their ability to pass on higher cost burdens to clients which further placed upward pressure on firms’ margins.

“Challenges remain as the economy adjusts to recent shocks, but the overall upturn was robust compared to the trend observed for the survey history,” Dodhia said.

Meanwhile, the Future Output Index signalled the strongest level of confidence in three months, with more than one-in-five survey participants forecasting higher production.

“This outlook was shared by the manufacturing community as sentiment picked-up to the strongest in three months amid expected improvements in market conditions over the next 12 months,” Dodhia said.

At the same time, stronger demand allowed firms to raise prices at the fastest pace in 10 months to make up for rising input costs, suggesting overall inflation could remain above the central bank’s medium-term target of 4.0 percent in the coming month. India’s retail inflation in November breached the central bank’s mediumterm target of 4 percent, which could put pressure on it to raise policy rates in the coming months.

Minutes from the RBI’s December meeting show bank members are becoming increasingly concerned about inflation.