India’s manufacturing activity expanded at its weakest pace in five years in August as growth in output and new orders slowed amid softer demand conditions, according to HSBC India Manufacturing Purchasing Managers’ Index (PMI) survey released on Tuesday.
The seasonally adjusted index fell to 52.8 in August from 53.5 in July, marking its third consecutive monthly decline. The latest reading was also below the long-run average of 54.2.
A reading above 50 indicates expansion, while one below 50 signals contraction.
Pranjul Bhandari, chief India economist at HSBC, said, “India’s final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month. The output index fell to its lowest level since August 2021, signalling that production is still expanding but at a markedly slower pace. Employment edged into a mild contraction in August, the first decline after more than two years of job growth. Meanwhile, input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly.”
New business continued to increase at a marked pace, but the rate of expansion was the slowest in five years. Manufacturers attributed the moderation to challenging market conditions and subdued demand for some products.
Demand trends weakened across two of the three industrial groups covered by the survey, with consumer goods being the exception.
Production volumes also continued to rise strongly, although the pace of growth eased to its weakest since August 2021. Companies linked the moderation in production to softer demand conditions and more limited increases in new orders.
Export orders increased during August, with manufacturers reporting gains from markets including Australia, Germany, mainland China, Spain, Thailand and the US. However, growth in international orders slowed from July.
Softer demand affects jobs and purchases
The weaker sales environment also affected hiring and purchasing decisions. Manufacturing employment declined for the first time in two-and-a-half years, although the fall was only fractional. Companies cutting staff largely attributed the reduction to lower business requirements.
Input purchases increased for the 62nd consecutive month, but at the weakest pace during this period. While some manufacturers continued to replenish stocks, others reduced purchases in response to weaker demand.
Stocks of finished goods increased for the second straight month as lower-than-expected sales led to an accumulation of inventories. The increase was moderate and softer than in July.
Costs pressures ease
Cost pressures eased during August. Manufacturers continued to report higher prices for inputs such as steel as well as transport, but the overall rate of input cost inflation moderated to a six-month low.
Softer cost pressures allowed companies to limit increases in selling prices. Fewer than 7 per cent of survey participants raised their charges during the month. Output price inflation was the slowest in 45 months and remained below its long-run trend.
Despite the slowdown, business expectations improved. Around 16 per cent of manufacturers surveyed expected output to increase over the next 12 months, while the remainder anticipated no change. Confidence rose to its highest level since May, though it remained subdued by historical standards.
