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Chennai floods sink December manufacturing PMI

By Niranjan Mudholkar,

Added 05 January 2016

Having risen for 25 straight months, total manufacturing production in India fell during December

December's floods also affected supplier performance, which deteriorated to the greatest extent since March  2013. This was despite input buying decreasing over the month. Encouragingly, Indian goods producers hired additional workers in December. Anecdotal evidence highlighted expectations of an improvement in domestic demand in the near term.

That said, the rate of job creation was little-changed from the marginal pace seen in the previous month.

Amid reports of higher transport and import costs more than counteracting falling commodity prices, purchase prices rose in December. Manufacturers passed part of the additional cost burden on to clients as charges increased further. Despite reaching seven-month highs, rates of inflation were below their respective long-run averages.

There were divergences with regards to stock levels, as inventories of purchases rose and holdings of manufactured goods declined again. Commenting on the Indian Manufacturing PMI survey  data, Pollyanna De Lima, Economist at Markit and author of the report, said: "India's  manufacturing  sector took a  turn  for  the worse at the year end, with already-gloomy internal demand further hampered by floods in the South of the country. Ending a 25-month sequence of growth, production plummeted in December. Such was the extent of the  decline that the rate of reduction was the sharpest since the financial crisis."

The continued depreciation of the rupee against the US dollar pushed inflation higher, with PMI price Indicators pointing to stronger increases in both input prices and output charges. Following the Fed Rate hike and expectations of  further  increases,  more currency weakness is anticipated, adding strain to businesses' dollar-priced  debt and import costs. Whereas the frail rupee boosted growth of new   business   from abroad, corporate earnings can't solely rely in external markets as global demand remains subdued."
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