India: Economic conditions deteriorate in November amid demonetization
December 5, 2016
Activity in India’s manufacturing sector lost steam in November as the government’s demonetization hurt cash availability. The manufacturing Purchasing Managers’ Index (PMI), elaborated by Nikkei and IHS Markit, fell from October’s 54.4, which had marked the best result since December 2014, to 52.3. However, the PMI still lies above the 50-threshold that separates expansion from contraction, where it has been since January.
Slower rates of growth were recorded in new orders, buying levels and output as cash shortages plagued the sector. However, employment was broadly stable and charge inflation was marginal. IHS Markit analysts commented on the outlook for the Indian economy given the recent cash crunch, stating that, “although many surveyed companies commented that further disruption is expected in the near-term, the demonetisation of the rupee is anticipated to ignite growth in the long-run as unregulated companies leave the market.”
Meanwhile, a sharper downturn was recorded in the cash-reliant services sector and the Nikkei services PMI fell from October’s 54.5 to 46.7 in November. The result was below the 50-threshold and indicates contraction in the sector for the first time since June 2015. According to Nikkei, the cash crunch caused a drop new business and activity fell across three of the six subsectors surveyed. However, confidence in the industry surged to a three-month high.