Manufacturing growth cools in Sep; higher rates may keep it lower for longer

Markets
Markets

Summary

Looking ahead, domestic demand may see some pressure with higher interest rates still feeding into the economy. This could hurt growth in the manufacturing sector in the coming months.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) was resilient in September, although it did cool down a notch. The private survey’s reading of 57.5 for September is the lowest reading in the past five months. A PMI reading above 50 denotes expansion.

To be sure, from the highs seen in August, some moderation in the September reading was on the cards. What is more, the September “PMI reading is in line with some of the more timelier data," wrote Thamashi De Silva, assistant India economist, Capital Economics, in a note on 3 October. Credit growth to industry has moderated in the recent months, she said, adding imports of items other than commodities have fallen far below last year’s peak, she said.

Looking ahead, domestic demand may see some pressure with higher interest rates still feeding into the economy. This could hurt growth in the manufacturing sector in the coming months. New orders, the largest sub-component of the PMI, fell to a six-month low of 60.9 in September. Plus, new export orders declined from the nine-month high seen in August. India’s exports remain exposed to the lingering threat of developed economies seeing a recession going ahead.

“The PMI readings on new export orders is in contrast with merchandise export data which has been showing decline in exports (on a year-on-year basis) since end FY23, reflecting impact of slowdown in external demand," said Gaura Sen Gupta, economist at IDFC First Bank. Notably, The J.P.Morgan Global Manufacturing PMI stood at 49.1 in September, remaining in the contraction zone (below the 50 mark) for the thirteenth successive month—indicating muted global demand scenario.

Meanwhile, a bright spot in India’s September manufacturing PMI survey was the easing of input cost inflation. “After quickening to a one-year high in August, the rate of inflation receded to its lowest mark in over three years," said the survey report. However, rising oil price is a risk to the sector’s profitability outlook and even to India’s retail inflation trajectory.

Despite lower costs, manufacturers have continued to raise selling prices, perhaps on the demand optimism in the upcoming festive season. Indian manufacturers are gung-ho on volume growth prospects over the coming 12 months. PMI’s Future Output Index—a gauge of confidence among manufacturers showed that the overall level of positive sentiment in September improved to its highest in 2023 so far. But with a galore of downside risks this optimism will be put to further test.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS