Japanese manufacturing activity grew at its fastest pace in three months in May as new orders rose, prompting factories to ramp up production, a private survey showed on Thursday, adding to signs the economy is sustaining momentum in the second quarter. The final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) rose to 53.1 in May on a seasonally adjusted basis, stronger than a preliminary reading of 52.0 and a final 52.7 in April. The index remained above the 50 threshold that separates expansion from contraction for the ninth consecutive month. The final index for new orders, which includes both domestic and overseas orders, rose to 53.4 in April, higher than both the flash reading of 51.4 and 52.4 in the previous month. The final index for new export orders was 53.0, versus a preliminary 51.6, and a final 53.3 in the previous month. Data on Wednesday showed Japan’s industrial output grew in April at the fastest pace in almost six years, highlighting recent improvements in the economy.
Finance Minister Arun Jaitley on Thursday sought to discount the impact of demonetisation on the Indian economy in the wake of the latest GDP figures and dismissed criticism of the government that it has only promoted jobless growth in the past three years. At a media conference on the completion of the NDA’s three years in office, Jaitley asserted that there were several factors even before demonetisation like global slowdown which cumulatively impacted the economy. Jaitley said the criticism of jobless growth was a propaganda by opponents who had nothing substantial to comment on the government’s performance. The Finance Minister said the government had, in the past three years, left an impact in three areas — capacity to take decisions, even tough ones, clear direction in decision making, and allowing market mechanism to ensure transparency and maximum revenue in allocation of public resources. “What you think is very clear, is not clear. Let us not be guided by erroneous premises. There are several factors which can contribute to GDP. There was some slowdown visible even before demonetisation in the last year. There was impact of global factors,” he said in reply to a question whether demonetisation had an effect “which was very clear” from the GDP numbers released on Wednesday. “There could be some impact on two quarters (due to) the issue which you mentioned,” he told the questioner. The latest figures released by the official statistician on Wednesday showed the country’s GDP growth during the last quarter fell sharply to 6.1 per cent, while it grew at a lower 7.1 per cent in the full fiscal 2016-17, from 8 per cent in the previous year.
Consumer price inflation is likely to rise above RBI’s medium-term target of 4 per cent in 2017-18 due to factors like rise in rural wages and transient impact of goods and services tax (GST), said a report. The uptick in underlying price pressure could push the RBI to hike rates this fiscal, said the report by UBS. The global brokerage has estimated average consumer price index (CPI) inflation, excluding the house rent allowance, is expected to be at 4.2 per cent and 4.5 per cent for 2017-18 and 2018-19, respectively. Further, UBS has estimated CPI inflation (excluding HRA) in second half of 2017-18 to average at 5-5.5 per cent, while the inflation in the first half of the fiscal is likely to be recorded around 3-3.5 per cent. “While headline inflation remains contained compared with previous highs, we believe upside risks to CPI inflation clearly persist. The report has attributed the possible rise in inflation to eight factors including pent-up consumption emand on remonetisation, a rise in rural wages, an increase in minimum support prices (MSPs) for agricultural crops and movement in global commodity prices and rising input costs. Gradual closing of the output gap, an HRA increase under the seventh pay commission, the transient impact of GST implementation and an expansionary fiscal policy, are the other factors to adversely impact inflation.
The country’s economic growth is expected to recover to 7.2 per cent in new GDP series in financial year 2017-18 on lending rate cuts, says a survey. The data released by the Central Statistics Office (CSO) noted that the Gross Value Added (GVA) slipped sharply to 6.6 per cent in the last financial year ended March 31, from 7.9 per cent growth in 2015-16. “…This confirms our standing view of a shallow recovery. We expect FY18 growth to recover to 7.2 per cent in new GDP series and 6 per cent in old series on lending rate cuts,” Bank of America Merrill Lynch (BofAML) said in a research note. Regarding the Reserve Bank’s policy stance, the report said on balance, we continue to expect the RBI to cut rates by 25 bps on August 2, with May CPI inflation slowing below 2.5 per cent. “We grow more confident of our contrarian call of a 25 bps RBI rate cut on August 2. We are tracking May CPI inflation at about 2.5 per cent, at the lower end of RBI’s 2-6 per cent mandate, with daily data showing food inflation continuing to fall in May on a good summer rabi harvest,” it added. The Reserve Bank in its monetary policy review meet on April 6 kept the re-purchase or repo rate — at which it lends to banks — unchanged at 6.25 per cent but increased reverse repo rate to 6 per cent from 5.75 per cent. RBI’s next policy review meet is in June 6-7. The report noted that consumption demand will drive growth led by lower lending rates, 7th Pay Commission Award, and better monsoons pushing up rural demand. “We do not see material risk of second round inflation effects from the house rent allowance (HRA) hikes by the 7th Pay Commission as the first round effect itself is mostly statistical,” it added.