India’s manufacturing sector experienced a slowdown in September, reaching its weakest growth in eight months, according to the latest survey by S&P Global.
Despite robust demand and steady production, growth in factory activity has been decelerating since June, signaling potential challenges for the broader economy in the months ahead.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell to 56.5 in September, down from 57.5 in August, marking the slowest expansion since January.
While this remains above the 50-point threshold that separates growth from contraction, it highlights a softening in momentum.
“Momentum in India’s manufacturing sector softened in September from the very strong growth in the summer months,” said Pranjul Bhandari, chief India economist at HSBC, as quoted by Reuters.
Cooling demand and output
Key indicators such as new orders, a primary gauge of demand, grew at their slowest pace since December, though they remained solid overall. Meanwhile, output levels also hit an eight-month low.
The slowdown in production growth coincides with weaker international demand, with export growth falling to its lowest in 18 months.
Only 6% of firms surveyed reported an increase in overseas orders, signaling a notable hit to global trade performance.
The dip in manufacturing activity is likely to weigh on India’s overall economic expansion.
After achieving 6.7% growth in gross domestic product (GDP) during the April-June quarter, the country may see a further moderation in growth for the next quarter due to this cooling in factory output.
Business Sentiment and employment decline
The survey also revealed a slight deterioration in business confidence.
The future output sub-index, a measure of optimism about the year ahead, dropped to its lowest level since April 2023.
Employment generation, which had been steady in previous months, also slowed to a six-month low in September.
“International demand took a bigger hit, and export growth eased to a level not seen in a year-and-a-half,” added Bhandari, reflecting the global challenges faced by manufacturers.
Rising input costs and impact on margins
One area of concern is rising input costs.
Input price inflation picked up in September, although manufacturers were not able to fully pass these cost increases on to consumers.
Inflation in prices charged fell to a five-month low, indicating that companies are absorbing some of the pressure on margins as demand weakens.
“Input prices rose at a faster rate in September, while factory gate price inflation eased, intensifying the compression on manufacturers’ margins,” Reuters report added, quoting Bhandari.
Economic outlook and interest rates
Despite recent signs of cooling inflation, the broader outlook for price pressures remains uncertain.
A recent Reuters poll suggested inflation could rise in the coming months, even though it recently fell below the Reserve Bank of India’s medium-term target of 4%.
The central bank is expected to hold interest rates steady in October, with rate cuts anticipated to begin in December.
As India’s manufacturing sector navigates these headwinds, policymakers will be closely watching for any further signs of economic softening.
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