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Signs Of Slowdown

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The economy is not just slowing down, it stalled in September; the latest HSBC Purchase Managers Index (PMI) surveys show that manufacturing business has fallen to its lowest level in 30 months, while activity in services fell to its lowest level since November 2009. Manufacturing PMI declined to just 50.4 in September from 52.6 in August; services PMI fell to 49.8 (a number above 50 shows expansion, and below 50, contraction) from 50.2.

Manufacturing and services account for almost 83 per cent of all economic activity, so the numbers suggest that the slowdown in India could be deeper — and longer — than most anticipated. New orders — an indicator of future business output — have fallen for the sixth month, while exports have declined for the third successive month.

The problems are largely financial: access to cheap capital are slowing new business growth, investment demand is falling, and employment has been hit too (the surveys suggest staff attrition has added to the decline in employment growth).

The story doesn't appear to be restricted just to India. The major Asian economies also seem to be suffering from the same syndrome, particularly in manufacturing. September PMI in Taiwan fell from 45.2 in August to 44.5, in Japan from 51.p to 49.3 and in Korea from 49.74 to 47.48. The official estimate for China shows a marginal increase from 50.9 in August to 51.2, but the ‘unofficial' HSBC estimate is at 49.9.

America is struggling, Europe is in crisis, and now Asia seems to be in the doldrums. The dismal science, it seems, is living up to its name.

(This story was published in Businessworld Issue Dated 17-10-2011)