The government on Friday released data on inflation and industrial production, which showed a double impact on the economy. Inflation rose to a 4-month high of 5.69% in December, driven by a significant increase in the prices of vegetables, pulses and spices. Conversely, industrial production growth fell to an 8-month low of 2.4% in November, mainly due to a poor performance by the manufacturing sector.
The previous low IIP growth was recorded in March 2023 at 1.9%. In addition to manufacturing, other components of IIP, such as mining and electricity, also slowed in November. The IIP growth was also lower than the street estimates. In November 2022, the Index of Industrial Production (IIP) was 7.6%.
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Manufacturing sector growth fell to 1.2% YoY in November 2023, down sharply from 6.7% YoY a year ago. Electricity production increased by 5.8% YoY, which is much lower than the 20.4% YoY growth seen in October 2023. Mining also slowed to 6.8% YoY compared to 13.1% YoY growth in October 2023. All three segments saw an impact due to unfavorable basis, ICICI Bank Global Markets said.
Only six categories registered an expansion in November 2023: Within manufacturing, six categories registered expansion in November 2023 against 19 in the previous month (October), indicating a sharp slowdown within the industry. Coke and refined petroleum products, base metals, motor vehicles and other transport equipment recorded positive growth.
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On the other hand, pharmaceuticals, chemical products, apparel, computers and electronics, electrical equipment and machinery and equipment and furniture registered a contraction, as stated by ICICI Bank Global Markets.
Slowdown in capex visible in capital goods and production of infra/construction goods: From a consumption-based perspective, ICICI Bank Global Markets said that three of the six components, including capital goods, consumer goods, and consumer non-durables, registered contractions.
The infrastructure and building goods sector reported a sharp decline of 1.5% YoY in November due to an unfavorable base and lower government capex. This was also visible in capital goods production volume.
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Even intermediate goods production slowed to 3.5% YoY in November. On the other hand, primary goods registered an increase of 8.4% YoY in November, it added.
Consumer durables and non-durables are registering a contraction on weak consumer demand: The latest GDP print and several high-frequency indicators point to weak consumer demand in the country. The IIP numbers underline the same, as pointed out by ICICI Bank Global.
Growth in consumer durables and non-durables contracted during the month amid low discretionary demand and a rural slowdown. However, the festive month would also have affected factory production, he noted.
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Investment-driven growth to continue: Industrial activity is forecast to increase by 7.9% in FY24 (first advance estimates) driven by domestic demand but could be dragged down by weak exports, ICICI Bank Global Markets indicated.
It says the outlook for exports is weak, with global demand for manufactured products slowing. A bigger driver of growth could be a pick-up in rural demand, which has lagged.
Further, a normal monsoon next year may be a bigger driver of growth next year. At the same time, the real estate cycle and capex acceleration should drive growth higher in the medium term, it stated.
Disclaimer: The opinions and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 15 Jan 2024, 13:00 IST
(tagsTo Translate)IIP in November