Industrial Production for September 2019

Economic slowdown deepens as IIP growth plunges to an eight-year low of (-)4.3% YoY in September 2019.

Industrial output, a barometer of India's business activity, fell to an eight-year low of (-)4.3% YoY in September 2019, suggesting further worsening of the slowdown in the economy. The contraction in industrial output was broad-based and was far below the market expectation. This is in line with the growth in eight core industries output, which witnessed the steepest contraction of 5.3% YoY in September since 2011-12.

Although the fall in output was driven down by an across the board contraction, it was primarily due to a steep drop in mining and manufacturing output. These sectors contracted by 8.5% YoY and 3.9% YoY in September as against 0.1% YoY and (-)1.2% YoY in the last month, respectively. The electricity sector, too, witnessed a contraction of 2.6% YoY for the second consecutive month.

By use-based classification, both investment and consumer demands continued to drag on industrial production growth. Capital goods output remained in the negative zone for nine consecutive months and contracted by 20.7% YoY in September. The production of consumer durables fell by (-)9.9% YoY, which affirms the fall in automobile output by (-)24.8% YoY and an overall consumption slowdown in the economy. The only relief comes from the growth in intermediate goods output, which grew by 7% YoY in September, raising hope for recovery in IIP growth in a few months.

We believe that the persistent slowdown in industrial growth may have a bearing on the gross domestic product in the second quarter of FY20, which is already at a six-year low. Furthermore, IIP growth in October is also likely to be weak, as suggested by the drop in manufacturing PMI to a 2-year low of 50.6 in October from 51.4 in the last month. At this backdrop, we can expect RBI to go for another rate cut in December to revive the industrial activity in the economy.