India's manufacturing activity growth dips to 3-month low in August
What's the story
India's manufacturing sector has experienced a slowdown in growth, hitting a three-month low of 57.5 in August due to significantly reduced demand. This information was revealed in a survey conducted by S&P Global. The country's economic expansion also decelerated to 6.7% in the previous quarter from 7.8%, as government expenditure declined, according to official data released last Friday.
Decline
HSBC's PMI for India falls below estimate
The HSBC final India Manufacturing Purchasing Managers's Index (PMI), compiled by S&P Global, saw a decrease for the second consecutive month in August. The index fell to 57.5 from July's 58.1, lower than an initial estimate of 57.9. Despite this drop, the index remained above the crucial 50-point threshold that distinguishes growth from contraction since July last year, indicating continued expansion in the sector albeit at a slower pace.
Impact
Subdued demand impacts new orders
The survey revealed that both the output and new orders sub-indexes, which are indicators of demand, reached seven-month lows. International demand also saw its slowest growth since January but remained strong overall. Pranjul Bhandari, chief India economist at HSBC, noted that "new orders and output also mirrored the headline trend, with some panelists citing fierce competition as a reason for slowdown."
Effects
Cost pressures and output price inflation impact manufacturing
The survey highlighted that cost pressures in August were at their lowest since March. However, output price inflation neared July's almost 11-year high due to persistent demand, enabling companies to transfer additional costs onto customers. Bhandari further explained, "In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers."
Rate cut
RBI expected to cut interest rates
Inflation in India dropped to an almost five-year low of 3.54% in July, primarily due to the high-base effect, suggesting the slowdown was temporary. This development has led experts to anticipate that the Reserve Bank of India (RBI) may reduce interest rates by 25 basis points in the next quarter. Despite a slowdown in hiring for two consecutive months, companies continued to recruit staff for the sixth month in a row due to strong demand and business optimism.