Indonesia manufacturing was recorded in 48.2 in November 2019, increased from October 2019 of 47.7 - Photo: Privacy

JAKARTA (TheInsiderStories) – Indian industrial production slumped by 4.3 percent year on year (y/y) in September, with manufacturing output declining by 3.9 percent y/y. The deepening contraction in Indian manufacturing output was broad-based, with 17 out of 23 sectors of manufacturing showing a contraction in September y/y, according to official data released on Monday (11/11).

The manufacturing sector performance in the financial year to date has also been weak, with only a marginal growth of 1.0 percent y/y for April to September 2019, compared to the same period a year ago.

The deepest contraction in manufacturing was recorded in the auto sector, which slumped by 24.8 percent y/y in September. The fabricated metal products sector was also very weak, recording a contraction of 22.0 percent y/y in September.

Measured by use-based classification, capital goods output slumped by 20.7 percent y/y in September, while infrastructure and construction goods output fell 6.4 percent.

Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, Asia Pacific Chief Economist at IHS Markit, said the September industrial production numbers highlight the continuing weakness of the Indian economy in the July-to-September 2019 quarter, with a deep slump still on-going in the Indian auto sector. The sharp decline in capital goods output is a key concern, as it signals that the outlook for new investment is very weak.

India’s near-term economic outlook continues to be clouded by considerable fragilities in the financial sector. Public sector banks are still struggling under the burden of high non-performing loans on their balance sheets, while problems in the non-bank financial sector (NBFC) have significantly constrained credit growth from that sector, slowing the overall pace of credit growth in the Indian financial sector.

“For example, auto loans from the NBFC sector are estimated to have fallen sharply during 2019. Contagion from the NBFC crisis could also further impair the balance sheets of some public sector banks,” Biswas said.

With constraints on the pace of credit expansion, IHS Markit forecasts that Indian GDP growth will moderate from a pace of 6.8 percent in 2018-19 to 5.8% in 2019-20, a full percentage point slower than the previous financial year.

Given the process of strengthening bank balance sheets has already been slow and protracted, India’s financial sector problems are likely to remain a drag on the pace of economic growth over the medium-term outlook.

Japan’s Private Machinery Orders Drops 

Japan‘s private machinery orders excluding volatiles – a leading indicator of capital expenditure – fell in September for the third consecutive month, by 2.9 percent month on month (m/m), leading to a 3.5 percent quarter-to-quarter (q/q) drop in the third quarter (3Q) of 2019, Cabinet Office data showed Monday (11/11).

Orders from manufacturers declined 5.2 percent m/m in September after a 1.0 percent drop in August, offsetting a 2.6 percent rise in orders from non-manufacturers excluding volatiles, the data showed.

The weakness in orders from manufacturers came after solid increases in orders from non-ferrous metal, chemical and chemical products, and petroleum and coal product sectors in previous months.

That said, orders from electrical machinery, information, and communication electronics equipment, and general-purpose machinery manufacturers continued to rise. Rebounds in orders from telecommunications and information service sectors largely contributed to the improvement in orders from non-manufacturers.

Harumi Taguchi, the principal economist at IHS Markit, said despite the weak September results, improvement in orders of electronic and communication equipment was outstanding. The increase exceeded industry outlook for 3Q as of June while orders of all other major types of machines failed to meet the forecast.

“Despite a 12.6 percent m/m decline in overall machinery orders from overseas, an upturn in orders of electronic and communication equipment from overseas suggests an upswing in the tech cycle, which could encourage fixed investment in tech-related industries,” Taguchi said.

That said, tech-related machinery orders have not been strong enough to counter the overall weakness in private machinery orders excluding volatiles. The market forecasts private machinery orders, excluding volatiles, will increase by 3.5 percent in the fourth quarter (4Q) q/q, driven by replacement demand for machinery and Shinkansen rolling stock damaged by typhoons.

Its outlook of an 8.1 percent q/q rise for orders from overseas in 4Q, following a 6.8 percent q/q rise in 3Q, could also support production and orders from manufacturers. That said, the strength of the rebound in private machinery orders is likely to depend on how global uncertainties, particularly the US-China trade talks and Brexit, unfold.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com