TeaRecent sets of macro-economic data — the Government’s index of eight major industries for MayAnd S&P Global’s Survey Based Purchasing Managers Index (PMI) As for the manufacturing sector for June – present an economy where industrial momentum is being weighed down by continued price pressures. Provisional production in May in eight core industries, spanning from coal to power, rose by an average of 18.1% in 2021 from the same month, when the second wave of the COVID-19 pandemic severely disrupted economic activity. Core output growth was led by double-digit year-over-year expansion in refinery products, power, steel and coal, which together account for three-quarters of the index. The four regions with weightings of approximately 28%, 20%, 18% and 10% posted expansions of 16.7%, 22%, 15% and 25.1% respectively. Cement and fertilizers also witnessed strong growth of 26.3% and 22.8% respectively. However, on a sequential basis, growth in production above April 2022 levels was significantly slower, reflecting the ‘optical illusion’ created by lower production in the year-ago period. While the index rose 2.6% month-on-month, petroleum products expanded 1.9%, electricity grew 1.5%, and steel grew a relatively healthy 5%. Disappointingly, cement, a key construction material reflecting the level of activity in job-intensive sectors, actually saw production decline by 3.2% from the previous month.
More up-to-date June PMI data separately shows that price pressures decelerated manufacturing growth to the slowest pace in nine months. June’s PMI reading fell to 53.9 from 54.6 in May as customers cut spending amid inflation concerns amid a broader slowdown in orders, production, exports and input buying. Inflation, in fact, so dominated assessment of corporate outlook that it pushed business confidence to its lowest level in 27 months. A majority of purchase managers at the nearly 400 construction companies polled by S&P Global cited elevated price pressures as the main reason they see no change in production from current levels in the coming year. The silver lining in the survey, however, is that manufacturers reported their first shortfall in input lead times since the onset of COVID-19, a testament to the ability for businesses to scale up production quickly after demand revives. is a positive sign. The onus is on policymakers to ensure that both monetary and fiscal action is focused on containing inflation. Anything less affects the risk recovery.