India's factory growth falls to 5-year low
What's the story
India's manufacturing sector has lost some of its steam in July, with factory activity slowing down to its weakest pace in nearly five years. The slowdown is mainly due to softer domestic demand impacting new orders, purchasing activity, and hiring. However, export orders have gained strength during this period. The HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 53.5 in July from June's 54.2 reading, marking the lowest since August 2021.
Growth indicators
Slowdown was primarily driven by decline in new business
While a PMI reading above 50 indicates expansion, the latest figure was also below the long-term average of 54.2 for this series.
This suggests that while growth in the manufacturing sector continues, it is at a slower pace than usual.
The slowdown was primarily driven by a slowdown in new business with companies citing challenging market conditions and reduced client interest as reasons for weaker sales growth.
Export growth
Export orders gain strength
Despite the slowdown in domestic demand, export orders have witnessed a significant increase. Firms reported higher orders from countries such as Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand, and the UAE.
Production also continued to grow but remained among the softest since mid-2022.
The report also highlighted that manufacturers are benefiting from improved supply chains with supplier delivery times shortening at an almost record pace.
Market adjustments
Manufacturers scale back on input purchases, hiring
The report further noted that the softer demand environment has prompted manufacturers to scale back on input purchases and hiring.
Purchasing activity expanded at its slowest pace in 31 months, while employment growth weakened for the third consecutive month, hitting a record low in this current 29-month expansion cycle.
However, business confidence improved from June's recent low due to expectations of stronger demand, infrastructure spending, and new client inquiries.