China’s PMI Accelerates, India’s Decelerates

The two countries that hold the key to the recovery of global economy have shown contrasting PMI numbers for the month of March 2013. According to the private survey conducted by Markiteconomics, China has come up with superior PMI numbers for March while India has disappointed the world thanks to its power outages.

For March 2013, China Manufacturing PMI stood at 51.6 as against 50.4 in February 2013. The pickup in the manufacturing sector indicates that the world’s second largest economy is showing recovery at a faster pace. The operating conditions in China are pretty good with the highest production levels in the last five months, says the report. The expansion in its economy is the second fastest in the last two years.

With a rise in the output, the domestic demand and new export orders have also increased. The staffing conditions however have remained unchanged. The average input costs have decreased, signalling towards some margin expansion in the March 2013 quarter results. The inventories of finished goods have risen for the first time in the last six months, indicating a strong demand environment. Overall, the China PMI has come in well and is thus likely to create optimism in the Chinese stock markets. One may now witness a hike in the prices of crude oil and other commodities.

The official PMI of China published by the government has also shown a rebound in the output but it is lower than expected. Economists are now seeing a steady recovery in 2013 due to internal growth. Though the official data looks weaker than HSBC’s survey, there is still a reason to cheer as the economy is showing signs of recovery.

However, India’s PMI has disappointed the street by indicating the weakness in the manufacturing segment of the country. The HSBC India Manufacturing Purchasing Managers' Index (PMI) stood at 52 for March 2013, down from 54.2 for February 2013. At the reading of 52, the manufacturing sector indicates an expansion but at a slower pace. This time, the continued power outages and declined new business orders have hampered the manufacturing output. The export orders, however, have shown a rise which would comfort the government as the current account gap has increased to 6.7% because of the lower exports and higher oil and gold imports.

The power shortage has led to Indian producers having liquidated the finished goods inventories, thus increasing the stock pile of raw materials. Due to the power shortages, the order backlogs have increased, while delaying the delivery times and vendor payments. Many firms have increased their payrolls slightly and job creation has shown some improvement, giving rise to some optimism. HSBC’s chief economist Leif Eskesen said that there will be a rise in the output in the new fiscal.

Overall, the country has once again witnessed a weakness in its manufacturing capacity. For the markets, the triggers would now be the earnings of the March 2013 season.