1:18 pm
Jack
NEW DELHI — India's factory output growth skidded to a 29-month low in August, a widely watched survey showed on Friday, hit by a string of interest rate hikes and a plunge in export orders.
The HSBC India Manufacturing PMI, or purchasing managers' index, fell for a fourth straight month to 52.6, a shade below the previous low of 53.2 registered during the global financial crisis in April 2009.
"The moderation in growth is clearly not just a blip and is set to continue over the next several months," said HSBC chief India economist Leif Eskesen. "The driver of this is the lagged effect of monetary tightening."
A reading over 50 spells expansion of activity while below 50 indicates contraction. The August survey finding, based on data from over 500 manufacturing firms, was the lowest since a below-50 reading in March 2009.
The figures were seen as likely to fuel concerns that Asia's third-largest economy may be headed for a harder-than-expected landing as India's central bank keeps up efforts to rein in soaring prices.
Hopes are also dimming that emerging markets can offset weakness in advanced economies as even fast-growing India and China lose steam.
Indian government authorities expect the country to achieve at least eight percent growth, down from 8.5 percent last year, but many private economists see growth in the low seven percent range.
Credit Suisse said Friday it cut its economic growth forecast further for 2011-12 to 7.2 percent from 7.5 percent. While such expansion looks enviable compared with anemic Western growth, economists say it is not enough to tackle India's endemic poverty.
Economists said they still expected India's central bank to raise interest rates this month for the 12th time since March 2010 unless the global situation worsens.
Food inflation is at 10.05 percent year-on-year while overall inflation remains stubbornly over nine percent, the highest among major economies.
The PMI index showed "price pressures continue to build," Eskesen said.
"Of course if global economic headwinds prove more persistent and strengthen further, the Reserve Bank of India could justifiably feel tempted to press the 'pause' button," he added.
The index's forward-looking measures for new orders weakened as did employment and output prospects, pointing to cooling growth.
The drop in the export orders? index has been particularly steep -- sliding to 45 from 56 in three months, the fastest in over two years -- as the country's main US and European markets soften.
There has been "a collapse in export orders," said Credit Suisse economist Devika Mehndiratta.
Release of the index coincided with figures showing foreign funds pulled nearly $1.8 billion from the Indian stock and debt markets in August.
It was the highest monthly withdrawal since October 2008 when investors jumped from risky emerging market assets into government bonds, currency havens and gold.
