The continued tampering with the interest rates to tame inflationary pressures has dampened the business confidence in the country and led to slowdown in India's manufacturing growth, according to the latest UNIDO report.
According to the United Nations Industrial Development Organization (UNIDO) report on trends in global manufacturing, growth in Brazil, India and Mexico slowed in the second quarter of calendar year 2011, and remained below 5 per cent. “A slowdown of India's manufacturing growth seems to be related to successive increases in interest rates to combat inflation and a decline in business confidence,'' the report says. Battling above 9 per cent growth, the Reserve Bank of India has hiked key interest rates 11 times since March, 2010. It is scheduled to review the rates again on Friday.
As per the UNIDO report, the world manufacturing output grew by 5.2 per cent in the second quarter of 2011, compared to 7.5 per cent in the first quarter. It said beginning of the year expectations for a sustained recovery from the 2008 financial crisis were dampened by a reduction in the dynamism of global private consumption and international trade.
Tightening of fiscal policies amidst sovereign risks in some European countries led to financial market instability and rising inflation. In industrialised countries, manufacturing output rose by a mere 2.7 per cent in the second quarter compared to 5.7 per cent in the first quarter mainly because consumer spending did not offset the winding down of stimulus packages, fiscal consolidation and high commodity prices.Manufacturing growth markedly slowed in the U.S. from 6.5 per cent to 4.4 per cent mainly due to meagre growth in home building, low consumer durables and car purchases, rising input costs and poor employment generation that could not be compensated by a moderate pick-up in business investment.
Led by China, developing countries posted a growth rate of 11.2 per cent in the second quarter of 2011 compared to the same period of the previous year, even as India saw slowdown.
Among developing countries China's manufacturing sector remained the fastest growing with an annualised rate of 14.3 per cent.
