AFP/Hong Kong

India’s manufacturing shrank in August for the first time in over four years, dealing a fresh blow to efforts to boost a slumping currency, as rival China’s factory activity rebounded, figures showed yesterday.

HSBC’s Purchasing Managers’ Index (PMI) for India, which gives a snapshot of manufacturing health, tumbled to an unexpected low of 48.5 in August from 51.1 in July, amid a fall in orders.

The PMI index is seen as a leading signal of economic momentum. A reading below 50 signals contraction while anything above suggests expansion.

The Indian data came as growth forecasts were downgraded for the country for this financial year to March 2014, amid worries Asia’s third-largest economy could be on the brink of a full-blown crisis.

HSBC cut its growth forecast to four% from 5.5% while investment house Nomura India reduced its projection to 4.2% from 5%.

“This is not the bottom,” said HSBC economist Leif Eskesen, warning of “a deeper slowdown ahead”.

He said he expected to see no signs of recovery until the final quarter.

The most bearish was BNP Paribas, which slashed its forecast to 3.7% from 5.2% target, saying India’s “macro muddle” was nearing crisis levels.

BNP Paribas said the economy appeared to be entering a “tailspin” with business confidence collapsing under the rupee’s slide, rising energy costs, tighter financial conditions and policy confusion.

Last week, figures showed India’s economy grew by 4.4% in the first three months, the slowest quarterly pace since early 2009, when the world was staggering from the onset of the global financial crisis.

The Indian government expects growth of around 5.5% after expansion slowed to a decade low of 5.0% last year.

The rupee closed down by nearly half a% at 66 to the dollar, snapping a two-day rally, as investors worried the negative data would deter foreign capital inflows but shares finished up 1.43% at 18,886 points on bargain-hunting.

India’s PMI reading, the lowest since a below-50 level in March 2009, contrasted with figures showing Chinese factory activity shifted to expansion from contraction — surging to 50.1 in August from 47.7 in July — after three months of shrinkage.

“We expect some upside surprises to China’s growth in the coming months,” said HSBC’s chief economist for China, Qu Hongbin.

Chinese authorities are targeting 2013 growth of 7.5% as they seek to shift the economy’s growth engine from big-ticket investment to consumer demand.

The Chinese government’s official PMI for August, released on Sunday, was a 16-month high of 51, driven by stimulus steps and companies restocking goods.

The upbeat Chinese data coincided with PMI figures suggesting a broadening recovery in eurozone manufacturing, cheering global stock markets.

But factory activity shrank sharply in Southeast Asia’s largest economy Indonesia, on reduced orders, falling to a 15-month low of 48.5 in August from 50.7 in July.

“Weaker demand both domestically and externally appeared to be behind the worsening in manufacturing conditions,” said HSBC economist Su Sian Lim.

South Korea’s manufacturing activity shrank for a third straight month in August. Taiwan’s manufacturing, meanwhile, was unchanged at 48.6 in July, suggesting activity is stabilising. But stronger orders are needed to ensure the electronics exporter avoids a recession, HSBC said.

The fall of the Indian rupee and of other emerging-market currencies has been greased by expectations of a tapering of US stimulus that prompted large fund flows into emerging markets.

Credit Suisse economist Robert Prior-Wandesforde said India’s economic performance reflected a loss of its “normally strong animal spirits”.

India has “lost its mojo”, he said.

But the gloom might be overdone, he said, citing an expected boost to exports from the rupee’s fall and a strong monsoon that should increase harvests, and said Credit Suisse was keeping its growth forecast unchanged at 6%.

The British banking giant’s PMI for last month improved from an 11-month low of 47.7 in July and came after three months of contraction, HSBC said in a statement. It was unchanged from the bank’s preliminary reading released last month.

The index tracks manufacturing activity in China’s factories and workshops and is a closely watched gauge of the health of the world’s second-largest economy.

The August rebound suggested that growth in the sector has started to stabilise thanks to a modest improvement in new orders and output, said HSBC economist Qu Hongbin in the statement.

“This was mainly driven by the initial filtering through of recent stimulus measures and companies’ restocking activities,” he said. “We expect some upside surprises to China’s growth in the coming months.”

Authorities have so far been reluctant to introduce large-scale stimulus measures, but in late July did announce some steps to boost growth, such as reducing taxes on small companies and encouraging railway development.

The first half of this year saw analyst concerns about China’s economy mount after an expected rebound from growth of 7.8% last year — the worst performance in 13 years — failed to materialise.