India’s manufacturing sector saw a slowdown in growth during August, with the HSBC Manufacturing PMI dropping to 57.5, below the expected 57.9 and down from the previous month’s 57.9. This marks a three-month low, signaling a significant softening in demand and adding a layer of concern to the otherwise optimistic economic outlook for the country.
According to the latest HSBC final India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, the index dropped to 57.5 in August, down from 58.1 in July, marking the second consecutive month of decline. This figure was also slightly below the preliminary estimate of 57.9. Despite the decline, the PMI remained comfortably above the 50-mark that separates growth from contraction, where it has held steady since July 2021. The index has consistently outperformed its average, reflecting sustained manufacturing expansion.
India, Asia’s third-largest economy, saw its GDP growth slow to 6.7% in the last quarter, a notable decline from the 7.8% recorded in the previous quarter. This deceleration was largely attributed to a reduction in government spending, as reported in official data released last Friday.
The demand, while still upbeat, showed signs of softening. Both the output and new orders sub-indexes, which are critical indicators of demand, slipped to seven-month lows. Furthermore, international demand grew at its weakest pace since January, although it remained robust.
Chief India economist at HSBC, commented on the trend, stating, “New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for the slowdown.”
In terms of pricing, cost pressures were the lowest since March this year. However, output price inflation remained close to July’s near 11-year high, as resilient demand allowed manufacturers to pass on the additional costs to customers with relative ease.
Inflation in India fell to a near five-year low of 3.54% in July, driven largely by the high-base effect from the previous year. This suggests that the current slowdown may be temporary. The Reserve Bank of India RBI is widely expected to respond by cutting interest rates by 25 basis points in the next quarter to support economic growth.
Despite the challenges, the manufacturing sector continued to expand its workforce, marking the sixth consecutive month of job additions. However, the pace of hiring slowed for the second month in a row, reflecting the tempered optimism among businesses.
The outlook for the coming year remains robust, although it hit a 16-month low in August. Business optimism was dampened by concerns over inflation and intensifying competition in the market.
Overall, while India’s manufacturing sector continues to grow, the recent data suggests that the pace of expansion is moderating, with both domestic and international demand showing signs of easing. The upcoming months will be crucial in determining whether this slowdown is a temporary blip or the start of a more sustained trend.
India’s Chief Economic Adviser expects private capital expenditure to increase in the coming quarters. He also mentioned that urban consumption and food inflation are currently not causes for concern.
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