The manufacturing PMI (seasonally adjusted) was 57.5 in February, the seventh consecutive monthly expansion, albeit down modestly from the 57.7 in January. Over the past six months, the manufacturing PMI has shown activity recovery gathering steam. Barclays expect the positive momentum to continue as both fiscal and monetary policies remain supportive. A fast nationwide vaccine roll out could provide a further boost to activity normalisation. Barclays forecast Q4 FY20-21 GDP growth will be 2.7% y/y, and FY21-22 at 11.0% y/y
Details show that the improvement was driven by strong readings for output and new orders. The employment situation remains poor, however, with new hiring now declining for 11 months in succession. However, with new export orders and domestic orders remaining elevated, business activity and input stocks continue to rise. Pricing pressures are a key concern - especially the commodity price increases in basic metals, textiles, fuels and other key input goods.
In an environment of demand normalisation, a return of pricing power could mean the pass-through into core inflation may increase going forward. Barring sporadic increases in some cities, the COVID outbreak remains under control, as the number of active cases has declined for the past five months. Vaccine distribution will likely gain pace, with the phase-2 distribution targeting the elderly and people with co-morbidities beginning today. The government has prepared 10,000 public facilities and 20,000 private hospitals for inoculations, which could significantly increase the pace of vaccination, in our view
