NEW DELHI: The rate of contraction in manufacturing activity eased considerably in June and was the softest since an expansion registered in March, according to data released by HIS Markit. However, the surge in coronavirus cases and tightening of lockdown measures by many states may derail the recovery process.

The manufacturing Purchasing Manager’s Index (PMI) declined year-on-year to 47.2 in June but surged from 30.8 recorded in May, signaling faster normalisation in manufacturing activity since the nationwide lockdown was lifted on 1 June. A figure of above 50 indicates expansion, while a sub-50 print signals contraction. Despite the rise, the latest reading pointed to a third successive monthly decline in the health of the manufacturing sector, albeit one that was far softer than registered in April and May

Eliot Kerr, economist at IHS Markit said India’s manufacturing sector moved towards stabilisation in June, with both output and new orders contracting at much softer rates than seen in April and May. “However, the recent spike in new coronavirus cases and the resulting lockdown extensions have seen demand continue to weaken. Should case numbers continue rising at their current pace, further lockdown extensions may be imposed, which would likely derail a recovery in economic conditions and prolong the woes of those most severely affected by this crisis,” he added.

The Fitch Ratings in its latest Global Economic Outlook (GEO) released on Tuesday said it expects India’s GDP to contract by 5% in FY21. “In India, where authorities imposed one of the most stringent lockdowns globally to try to halt the spread of the virus, measures are being relaxed only very gradually; with a limited policy easing response and ongoing financial sector fragilities, we have pared our 2021 forecast to 8% from 9.5% in the previous GEO,” it added.

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