Slowing momentum: On palpable softening in economic momentum

Persistent inflation alongside moderate growth remains a challenge 

November 03, 2023 12:30 am | Updated 09:36 am IST

Latest data, including the official Index of Eight Core Industries for September and S&P Global’s Purchasing Managers’ Index (PMI) for the manufacturing sector for October, point to a palpable softening in economic momentum. The government’s provisional figures for output across the key infrastructure industries, from cement and coal to steel and electricity, show the average year-on-year growth in production eased appreciably to a four-month low of 8.1% in September, from the 12.5% pace posted in August. The pace of expansion flagged across all but one of the eight sectors, with only fertilizers registering a quickening in growth from the preceding month as farmers stocked up on the key agricultural input ahead of the rabi season. Heavy rains in the final month of the southwest monsoon season, which resulted in 13% surplus precipitation for September, also likely contributed to dampening demand and output for cement, electricity and steel, all of which saw significant slowing in growth from double-digit paces in August. Sequentially, production in fact contracted across all the eight sectors, with the overall index declining 4.8% from August’s level. Coal offered the silver lining: the year-on-year growth in output of the fuel eased only slightly to a still robust 16.1% pace, from August’s 17.9%, and posted just a 1.5% sequential contraction.

Independently, the more up-to-date survey-based manufacturing PMI data for October buttresses concerns that broader economic momentum may yet again be sliding for want of traction. The seasonally adjusted S&P Global India Manufacturing PMI signalled sectoral growth slid to an eight-month low last month, amid a weakening in demand, particularly for consumer goods. Factories saw new orders rise at the slowest pace in a year, with even international sales losing vigour. More worrying is the fact that less than 4% of the about 400 companies surveyed said they were adding staff, thus depressing job creation in manufacturing to the slowest level since April. Input cost inflation also accelerated. But factory gate inflation was considerably slower indicating that with demand uncertain, producers were forced to temper the pass-through of higher costs. With business confidence ebbing to a five-month low, the panellists cited rising inflation expectations as the key factor expected to dent demand and production growth over the next 12 months. And the advance estimates for lower kharif output, disconcertingly flag the fact that the farm sector may be able to offer little succour as rural incomes get hit. Policymakers have their task cut out to surmount the twin challenges of slowing growth and persistent inflation.

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