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India's MFG, services growth outpaced emerging economies in November
[ Review | Commerce / Trade  /  18 Dec 2014 ]

By Dhriti Ranjana Ray

Output growth in emerging market economies slowed and hit a

six months low in November, but India defied the overall trend

and posted the fastest growth since June as both manufacturing

and services sector output accelerated during the month.

The HSBC Emerging Markets Index (EMI), a monthly indicator

derived from the PMI surveys, slipped for the second month

running to 51.2, signaling the weakest rate of expansion since



Moreover, the EMI remained well below its long-run trend level of

53.7, and 2014 looks set to record the lowest annual average for

the Index since its inception in November 2005.


Data for the four largest emerging economies showed contrasting

activity trends in November. China registered growth for the

seventh month running, but at the weakest rate since May. India

posted the fastest growth since June, while Russia and Brazil both

registered sharper rates of decline.


During November, the HSBC composite index for India that maps

both manufacturing and services, stood at 53.6, whereas for China

it was 51.1, Brazil (48.1) and Russia (47.6). An index measure of

above 50 indicates expansion.


"The world’s main emerging markets remain shadows of their precrisis

selves in terms of growth rates, and once again acted as a

drag on the global economy in November," Markit Chief Economist

Chris Williamson said.


"Downturns in Russia and Brazil are intensifying to worrying

extents, and China’s economic growth rate continues to slow. Only

India saw an improvement in November," Williamson added.

Meanwhile, the outlook for global emerging markets also

deteriorated during November. The HSBC Emerging Markets

Future Output Index, which tracks firms' expectations for activity

in 12 months' time, fell to a new record-low.


All four of the largest emerging economies posted weaker sentiment

for next 12 months, most notably Russia and Brazil, while China

posted the lowest output expectations.


India’s robust performance during the month of November was

largely on the back of the stellar performance by the

manufacturing sector.


The headline HSBC India Purchasing Managers' Index (PMI) -- a

composite gauge designed to give a single-figure snapshot of

manufacturing business conditions -- stood at 53.3 in November

significantly higher from 51.6 in October.


India's manufacturing PMI rose to a 21-month high of 53.3 in

November from 51.6 in October, led by sharp rise in the output

and new orders and this data indicates that there is a stronger

underlying momentum.


Commenting on the India Manufacturing PMI data, Japanese

brokerage firm Nomura in a research note had said that the Indian

economy is “on a gradual recovery path” and real GDP growth is

likely to climb in coming quarters.


“Overall we expect real GDP growth of 5.5 per cent year-on-year in

FY15 from 4.7 per cent in FY14,” the Nomura report said.

"Manufacturing activity accelerated further in November led by

higher output and new orders. Domestic orders saw the biggest

increase, even as new export orders continued to be strong," HSBC

Chief India Economist Pranjul Bhandari said.


November data indicated stronger-than-expected demand, as new

order growth accelerated to the quickest in 21 months. Similarly,

foreign orders received by Indian goods producers continued to rise

strongly in November.


A cautionary note was, however, provided by the HSBC survey

regarding input costs and output charges, as inflationary

pressures intensified during the month following three consecutive

months of easing.


Meanwhile, the services sector activity in India accelerated at the

fastest pace in five months in November, driven by faster growth in

new business orders.


The HSBC India Services Business Activity Index, that tracks

changes in activity at Indian services companies on a month-bymonth

basis, rose from 50.0 in October to 52.6 in November,

registering the highest pace of growth since June. The survey

further said that notwithstanding the strong order flows, business

sentiment slipped to the weakest level since mid-2007.


"Despite the uptick in order flows, business sentiment

deteriorated, reminding us that continued policy action that

addresses investor concerns is needed to sustain growth

momentum," Bhandari said.


Finance Minister Arun Jaitley had recently said a whole set of

second generation reforms would be unveiled in the next Budget

and added that his immediate target is Insurance Amendment bill,

Coal Ordinance and the GST bill.


Meanwhile, the headline HSBC Composite Output Index -- that

maps manufacturing as well as services sectors output also

climbed to five-month high of 53.6, up from 51.0 in October.

Growth of activity and new business had little impact on service

sector employment in November as workforce numbers in the

Indian service sector declined for the first time in four months.

Meanwhile, prices dipped on falling commodity prices and

increased competition.


Calls for a rate cut had been growing in the run up to the policy

announcement, with Finance Minister Arun Jaitley also pitching

for lower the cost of capital to boost growth.


However, RBI Governor Raghuram Rajan in its December 2, policy

review meet kept interest rates unchanged, saying a shift in

stance is 'premature' but hinted that a cut may come early next

year if inflation continues to ease and the government acts on the

fiscal side.