Factory activity slowed down further in February with both output and new orders rising at a much softer rate, according to HSBC's Purchasing Managers' Index (PMI).
PMI, compiled monthly by global bank HSBC, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion.
The index fell to a five-month low of 51.2 last month from January's 52.9.
The report noted that all five components of the PMI contributed to a lower reading and weaker improvements in operating conditions were noted across the three monitored market groups.
Softer domestic demand contributed to slower new order growth in February with manufacturers reducing their payroll numbers. The rate of job cuts was slight overall, with the vast majority of survey participants indicating no change in employment levels since January.
The report stated, however, that new export business increased at a solid and stronger rate.
Pollyanna De Lima, economist at Markit, seemed optimistic about the future trajectory of output and employment. “Output charge inflation was historically muted as some manufacturers offered discounts due to a competitive environment. Furthermore, costs fell for the first time in almost six years. On a positive note, foreign orders rose at a strong and accelerated pace, while the PMI remained in positive territory. These factors brighten the prospects for a rebound in output and employment in coming months,” she said.
Economic Survey released last week showed better prospects for the economy highlighting the government's effort to boost manufacturing. The government also made some tweaks in duty structures to support local manufacturing in its first full-year Budget but skipped past some endemic issues like labour laws, which affect the sector.
The focus of the policy now shifts to RBI as expectations soar that the central bank would cut rates given that inflation has been under control and government seems confident in achieving its fiscal target for the year.
(Edited by Joby Puthuparampil Johnson)