resr 5paisa Research Team 15th December 2022

What the latest factory output numbers indicate about the state of the economy

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India's factory activity expanded at its fastest pace in three months in November, a private survey showed on Thursday, indicating strong demand despite worsening global economic conditions as input cost inflation fell to a two-year low.

The Manufacturing Purchasing Managers' Index, compiled by S&P Global, rose to 55.7 last month from 55.3 in October. A figure above 50 denotes expansion. November marks the 17th consecutive month of expansion in manufacturing production in India.

What did the latest survey show?

"India's manufacturing sector continued to perform well in November, besides heightened recession fears elsewhere and a deteriorating outlook for the global economy," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

"It was business as usual for goods producers, who lifted production volumes to the greatest extent in three months amid impressive evidence of demand resilience."

And why is this output going up?

Robust demand, particularly for consumer and intermediate goods, and marketing pushed the new orders sub-index to a three-month high.

International demand rose for an eighth consecutive month and at a similar pace to October.

What about inflation and input prices?

Input prices rose at the slowest pace in 26 months providing some relief for manufacturers. This also benefited end-consumers with selling prices rising at the slowest rate since February.

This led to an improvement in overall business confidence, with the future output sub-index at its highest since February 2015.

Will this have any impact on the RBI’s decision on a rate hike?

The PMI data could strengthen expectations for the Reserve Bank of India to opt for a smaller hike at its meeting next week as the previous three consecutive 50 basis point increases start to impact the economy.

Economic growth in India slowed to 6.3% last quarter, much weaker than the 13.5% growth reported in the previous three months as distortions caused by COVID-19 lockdowns faded.

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