India's private sector growth slows to 3-month low
What's the story
India's private sector growth slowed down in June, hitting a three-month low. The slowdown was largely due to weaker demand and hiring, as well as a dip in business confidence. However, easing inflationary pressures provided some relief. The flash HSBC India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, dropped to 57.4 in June from May's 59.3.
Economic indicators
Softer demand conditions
Despite remaining above the 50 mark that separates expansion from contraction, the PMI reading indicates a loss of momentum in India's economy at the end of Q2. The slowdown was mainly due to softer demand conditions, with overall new orders rising at their slowest pace since March. Survey respondents cited heightened competition and gas shortages as factors making it difficult to secure new business.
Sectoral impact
Services PMI at 17-month low
The services sector, a major contributor to economic growth in recent years, witnessed the sharpest slowdown. The services PMI fell to 57.3 in June from May's 59.8, its lowest reading in 17 months. Manufacturing activity also eased with the factory PMI slipping to a three-month low of 54.5 from May's reading of 55, despite manufacturers continuing to report rising output and new orders but at weakened growth rates compared to previous months.
Export fluctuations
Mixed trends in overseas demand
The survey revealed mixed trends in overseas demand for Indian goods. Services companies reported a slightly faster rise in international sales, indicating continued strength in exports of business and technology services. However, manufacturers witnessed the weakest increase in new export orders since March 2023, reflecting softer global demand and persistent trade uncertainties.
Employment trends
Slowest hiring pace since December
The slowdown in demand has also led to a more cautious approach toward hiring. Employment across the private sector rose only marginally in June, marking the weakest increase in this six-month job creation period. Both manufacturing and services firms reported their slowest hiring pace since December as they became more cautious about expanding payrolls amid moderating growth.
Inflation impact
Easing inflationary pressures but weak business confidence
The survey also showed easing inflation pressures, with input cost pressures easing for a third consecutive month. Overall cost inflation fell to its lowest level since January, thanks to lower increases in raw material and operating costs. However, business confidence weakened during the month with overall sentiment slipping below its historical average and optimism among manufacturers falling to its lowest level in nearly four years.