India experienced a decline in manufacturing activity, hitting an 18-month low in December, as reported by the HSBC India Manufacturing Purchasing Managers’ Index (PMI). The PMI dropped to 54.9 in December from 56 in November, signaling a slowdown in the manufacturing sector. October had already seen a deceleration in the rate of expansion, recording its slowest growth since February.
The PMI, which reflects the opinions of 400 manufacturers, revealed that despite the slowdown, the manufacturing sector expanded in December. Factory orders and output experienced softer, yet noticeable, increases, while business confidence towards the year-ahead outlook strengthened.
This dip in manufacturing follows the impressive 7.6% growth of the Indian economy in the second quarter, driven by higher government spending and robust performance in manufacturing, mining, and construction sectors.
Global factors have influenced India’s economic landscape, with merchandise exports impacted by a global growth slowdown. Additionally, tightening interest rates in advanced economies due to inflation concerns have led to a business, investment, and trade slowdown. Conflicts in Ukraine and West Asia have further added pressure, threatening to increase commodity prices and inflation.
November’s consumer price index (CPI) inflation for India came in at 5.55%, up from 4.87% in October. Although higher than the Reserve Bank of India’s target of 4%, it remained within the central bank’s tolerance range of 2-6% for the third consecutive month.
Pranjul Bhandari, Chief India Economist at HSBC, noted that the manufacturing sector continued to expand in December, albeit at a softer pace. Both output and new orders experienced a slowdown, but the future output index rose. Rates of increase in input and output prices remained broadly unchanged.
The HSBC India PMI survey highlighted that the rate of manufacturing expansion in November was the lowest since October 2022, although still above the long-term average. Fading demand for certain products contributed to this slowdown. New orders placed with Indian manufacturers rose sharply but at the slowest pace in a year and a half.
Looking at the capacity of manufacturers, the survey indicated a general lack of pressure at the end of the third quarter. Outstanding business volumes saw only a marginal uptick, and employment remained largely stable in December, just above the no-change mark. Manufacturers expressed optimism for the year-ahead outlook for production, reaching the highest level in three months.
