Indian Factory Growth Slumps to Five-Year Low as Domestic Demand Softens in July
The HSBC India Manufacturing PMI dropped to 53.5 in July, marking the weakest growth since August 2021. Despite a surge in international orders, domestic hiring slowed and total new business reached a near four-year low.
Key takeaways
- The July HSBC India Manufacturing PMI fell to 53.5, the lowest level recorded since August 2021.
- Job creation in the manufacturing sector hit a 29-month low as business owners responded to cooling domestic demand.
- Export orders surged across markets including Canada, the UAE, and Indonesia, providing a counterweight to domestic slowdowns.
- Manufacturers are increasing inventory buffers to mitigate supply chain risks stemming from Middle East instability.
Manufacturing Momentum Cools Despite Export Gains
Data from the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI) indicates a significant slowdown in industrial momentum. The seasonally adjusted index slipped from 54.2 in June to 53.5 in July, the lowest reading in five years. While the figure remains above the 50-point threshold that separates expansion from contraction, it now sits below the long-term historical average of 54.2.
The deceleration primarily stems from a cooling in total new business orders, which saw their second-weakest growth rate in over four years. While marketing efforts and resilient demand provided some support, factory owners reported that increasingly difficult market conditions and waning client interest for specific products tempered overall sales volume.
Employment and Supply Chain Dynamics
The softening in demand directly impacted the labor market. For the third consecutive month, job creation within the manufacturing sector weakened, recording the slowest growth rate in the current 29-month cycle of continuous hiring.
Conversely, supply chain efficiency showed marked improvement. Input delivery times shortened at a pace nearly unmatched in the survey's history. According to Pranjul Bhandari, Chief India Economist at HSBC, these improvements are substantial but remain vulnerable to external shocks. Bhandari noted that renewed Middle Eastern tensions cast doubt on the longevity of these logistics gains. Consequently, manufacturers are actively rebuilding stocks of both raw materials and finished goods to hedge against future disruptions.
Export Resilience and Shifting Price Pressures
While domestic demand faced headwinds, the international market provided a necessary buffer. External orders accelerated, with manufacturers highlighting increased sales from several global regions:
- North America and Africa: Canada, Egypt, Kenya, and South Africa.
- Southeast Asia and Middle East: Indonesia, Thailand, and the UAE.
- South Asia: Nepal.
On the inflation front, cost pressures for raw materials eased to a five-month low, though transport costs remained elevated. Despite lower input inflation, manufacturers accelerated their output charges to protect profit margins. Business optimism saw a modest recovery from June’s lows, driven by hopes for new infrastructure projects and the success of upcoming marketing campaigns.
Source: The Hindu — Economy
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