India’s PMI Declines to 52.8 Amid Slowing Factory Growth, Reaches Five-Year Low
India’s manufacturing sector experienced a significant slowdown in August, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) dropping to 52.8 from 53.5 in July. This marks the weakest performance in five years, driven by reduced output and new orders. Employment in the sector also declined for the first time in two-and-a-half years, indicating a broader contraction in manufacturing activity.
The PMI reading fell below the long-run average of 54.2, reflecting challenging market conditions and a subdued demand for certain products. Pranjul Bhandari, chief India economist at HSBC, noted that the output index reached its lowest level since August 2021, suggesting that while production is still expanding, the pace has significantly slowed. The decline in employment was slight, with companies citing lower operational requirements as the reason for reducing their workforce.
Overseas Orders Lose Momentum
Demand for Indian manufactured goods from overseas markets weakened in August. Although manufacturers continued to receive new export orders from countries such as Australia, Germany, and the United States, the overall increase in international sales was slower compared to July. Despite this, purchasing activity among manufacturers expanded for the sixty-second consecutive month, although the growth rate was the weakest recorded during this period.
Inventory levels rose as finished goods stocks increased for the second month in a row due to slowing sales. The accumulation of pre-production stocks continued, but at the slowest pace since April.
Cost Pressures Ease
In August, manufacturers reported a decrease in overall input cost pressures, despite ongoing increases in expenses related to steel and transportation. Input cost inflation fell to a six-month low. Additionally, the rate of output price inflation slowed, with fewer than 7% of surveyed firms raising prices. Those that did so aimed to remain competitive and protect their order volumes.
Business confidence improved, reaching its highest level since May, although it remained low by historical standards. Approximately 16% of companies surveyed anticipated an increase in production over the next 12 months, while the majority expected output levels to remain steady.
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