Manufacturing Growth in India Nearly Grinds to a Halt

Interest-rate hikes have crimped economic expansion in Asia's third-largest economy.

India's factory output slowed to its lowest pace in 30 months in September, hit by a slew of interest-rate hikes that have dampened economic activity, according to a widely watched survey.

The HSBC India Manufacturing PMI, or Purchasing Managers Index, slid more than two points to 50.4, a shade above the 50 level that divides contraction of manufacturing activity from expansion.

The September survey finding -- based on data from more than 500 manufacturing firms -- was the lowest since a below-50 reading in March 2009 and well below the long-term PMI index average of 56.

"Indian manufacturing growth is clearly slowing in response to the tighter monetary-policy settings, the uncertainty created by high inflation and the weaker global economic environment," said HSBC economist Leif Eskesen.

With the effects of a dozen interest-rate hikes in 18 months continuing to be felt and weak global economic conditions, "growth in the manufacturing sector is set to remain subdued in the foreseeable future," Eskesen said.

Eskesen and many other economists expect India's central bank to raise rates at least one more time this year in a bid to check inflation, which at 9.78% is the highest among major economies.

The manufacturing 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.

The findings dim hopes that emerging markets can help offset weakness in advanced economies with even fast-growing India and China losing steam.

Late last week, PMI figures showed that manufacturing activity in China contracted for a third straight month in September due to lackluster demand in the face of the eurozone debt crisis and U.S. economic weakness.

Copyright Agence France-Presse, 2011

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