Manufacturing growth to slow down in 2011

After the strong rebound in 2010, global restocking tails off and growth in the electronics sector is expected to slow down.

According to HSBC's Leif Lybecker Eskesen, Chief Economist for India & ASEAN, and Prithviraj Srinivas, Economics Associate iit will be difficult to repeat the strong growth in 2010 for the pharmaceutical sector when new production facilities and a high-value-added product mix boosted output.

But, the MAS need to stay in tightening mode. Inflation has been creeping up, although to a large extent driven by the deliberate policy of limiting the supply of COEs. However, price pressures are broadening and capacity constraints are tightening with unemployment low and wage pressures on the rise. Even with the slowdown in growth, the economy will continue to operate close to its potential and this will sustain the demand-led price pressures.

The recent manufacturing output data was weaker than expected number, although it was due to the unpredictable nature of the pharmaceutical cycle. Manufacturing output will slow next year with the full maturation of the global inventory cycle just around the corner. However, with inflation trending up and capacity tight, the MAS needs to continue the tightening bias despite the slowdown.