India, China Manufacturing Shows Resilience By Unni Krishnan - Jan 2, 2012

Manufacturing in India and China improved in December, a sign the world’s fastest-growing major economies are withstanding Europe’s debt crisis.

The Purchasing Managers’ Index in India rose to 54.2, the most in six months, from 51 in November, HSBC Holdings Plc and Markit Economics said in an e-mailed statement yesterday. In China, the index was at 50.3 from 49 in November, the Beijing- based logistics federation said in a statement on Jan. 1. A number above 50 indicates expansion.

In another positive sign, a Chinese index for non- manufacturing industries rose today. Europe’s crisis may still cap demand for goods from Asia with an index for Chinese export orders indicating a third month of contraction in December. India’s economic growth will be constrained by higher borrowing costs and global economic weakness, HSBC and Markit said.

“Asian economies are holding up as of now despite the turmoil in overseas markets,” said Madan Sabnavis, chief economist at Mumbai-based Credit Analysis & Research Ltd. “Europe’s debt woes though will keep demand for Asian goods subdued in the coming months.”

A Chinese non-manufacturing PMI jumped to 56 in December from 49.7 in November, the logistics federation and statistics bureau said today.
Optimism in Asia

Asian stocks rose on optimism the region’s economies will withstand Europe’s crisis. The MSCI Asia Pacific Excluding Japan Index gained 1.3 percent as of 9:33 a.m. in Hong Kong.

In the euro area, where leaders return to work this week seeking to rescue the single currency from fragmentation, a contraction in the manufacturing sector eased from November as an indicator of output in Germany, the region’s largest economy, reached a two-month high.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region rose to 46.9 from 46.4 in November, London-based Markit Economics said yesterday.

In China, the “festival effects” of western and Chinese New Year celebrations helped to boost the manufacturing PMI, said the logistics federation, which releases the data with the statistics bureau. China has also unwound some tightening measures to spur growth, cutting banks’ reserve requirements in November for the first time since 2008.
Chinese Stocks

The Shanghai Composite Index (SHCOMP) tumbled 22 percent last year, the most since 2008, on concern that monetary tightening and efforts to rein in property prices in big cities will limit growth. The index’s 33 percent drop since 2009 makes it the worst performer among the world’s 15 biggest markets.

In the Chinese manufacturing PMI, an index of export orders was at 48.6 from 45.6 in November, still below 50, the dividing line between contraction and expansion. A measure of output jumped to 53.4 from 50.9.

A Chinese manufacturing index released by HSBC and Markit on Dec. 30 indicated that manufacturing contracted for a second month. At the same time, HSBC said that “the pace of China’s slowdown is starting to stabilize.”

India’s “manufacturing activity rebounded on the back of increases in output and new orders,” Leif Eskesen, a Singapore- based economist at HSBC, said in the statement yesterday. “Inflationary pressures remain firm leaving no room for the RBI to ease its tight monetary policy stance in the near term.”

In India’s PMI data, measures of output, employment, orders, and export orders all rose, HSBC said.

India’s central bank on Dec. 16 kept rates unchanged for the first time in eight meetings after the economy expanded in the three months through September at the weakest pace in more than two years.
Car Sales

The Society of Indian Automobile Manufacturers may cut its annual domestic passenger-car sales target as higher rates and fuel prices sap demand for Maruti Suzuki India Ltd. and Honda Motor Co. vehicles, Sugato Sen, a senior director for the group, said last month.

The Reserve Bank of India’s repurchase rate is 8.5 percent after 13 increases since mid-March 2010. The next policy decision is scheduled to be announced on Jan. 24.

India’s central bank may reverse its rate increases to boost growth as inflation is showing signs of easing, the British Broadcasting Corp. reported citing Governor Duvvuri Subbarao. The central bank’s approach to managing inflation and growth will be different in 2012, the BBC quoted Subbarao in an interview posted on its website yesterday.

India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November from 9.73 percent in October.

India’s inflation readings in December were “not encouraging,” according to the statement from HSBC and Markit. Input price increases remained “well above historical levels” and the index of output prices rose to 56.2 from 55.4 in November, the statement showed.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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