03 Jul 2017 13:31 IST

Manufacturing PMI at four-month low of 50.9 in June

Business optimism falls to a three-month low with some firms concerned over GST

Manufacturing sector activity fell to a four-month low in June despite a rise in orders from abroad, according to a private monthly survey.

The Nikkei India Manufacturing Purchasing Manager’s Index (PMI) slowed to 50.9 in June as against 51.6 in May. This was the weakest expansion in the survey since February this year.

A reading above 50 indicates growth, while that below denotes contraction in production.

“One factor weighing on the PMI reading for June was a softer expansion in new work, the index’s largest sub-component,” said Nikkei in a release, adding that new orders received by consumer goods firms continued to rise strongly, while capital goods producers recovered from May’s contraction.

Foreign demand for Indian-manufactured goods improved in June, with new export orders up at the quickest pace since October 2016.

Input costs continued to increase, however, the rate of inflation was modest and the weakest since August 2016. Likewise, output charges rose only slightly and at a below-trend pace.

Worryingly, business optimism fell to a three-month low. The survey also found that while most manufacturers forecast output growth in the coming 12 months, some companies felt that the implementation of the goods and services tax (GST) would have a negative impact on their businesses.

“With the impact of demonetisation largely over and GST unlikely to substantially derail consumer spending, the IHS Markit forecast real GDP growth to hit 7.3 per cent for 2017-18,” said Pollyanna De Lima, Economist at IHS Markit and author of the report.

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