Home / News / India /  India's June factory growth falls to 9-month low as inflation worries bite

India's June factory growth falls to 9-month low as inflation worries bite

Although inflation eased in May to 7.04% after touching an eight-year high of 7.79% in April, a meaningful decline is not seen anytime soon even as the Reserve Bank of India is expected to continue with aggressive rate hikes. (REUTERS)Premium
Although inflation eased in May to 7.04% after touching an eight-year high of 7.79% in April, a meaningful decline is not seen anytime soon even as the Reserve Bank of India is expected to continue with aggressive rate hikes. (REUTERS)

  • While the Manufacturing Purchasing Managers' Index, compiled by S&P Global, remained resilient, it fell to a nine-month low of 53.9 in June from May's 54.6

India's factory output expanded at its slowest pace in nine months in June as elevated price pressures continued to dampen demand and output, according to a private survey, which also showed business confidence was at its lowest in over two years.

The economic recovery of the Indian manufacturing sector continued in June, aided by robust domestic and international client demand. However, growth of total sales and production eased amid intense price pressures

While the Manufacturing Purchasing Managers' Index, compiled by S&P Global, remained resilient, it fell to a nine-month low of 53.9 in June from May's 54.6, lower than the Reuters poll median prediction of 54.5. It has been above the 50-level separating growth from contraction for a year, indicating growth in the sector has remained solid.

"The Indian manufacturing industry ended the first quarter of fiscal year 2022/23 on a solid footing, displaying encouraging resilience in the face of acute price pressures, rising interest rates, rupee depreciation and a challenging geopolitical landscape," noted Pollyanna De Lima, economics associate director at S&P Global Market.

Although inflation eased in May to 7.04% after touching an eight-year high of 7.79% in April, a meaningful decline is not seen anytime soon even as the Reserve Bank of India is expected to continue with aggressive rate hikes, whereas rupee has been hitting fresh record lows in the past few sessions, and falling to 79 against the US dollar.

Inflation concerns continued to dampen business confidence, with sentiment slipping to a 27-month low. Elsewhere, input delivery times shortened for the first time since the onset of COVID-19, the report added.

“Softer increases in production, factory orders, stocks of purchases and employment all dragged down the PMI in June, alongside an improvement in supplier performance which is inverted before entering the calculation," S&P Global said.

New orders and output grew at their weakest rate since September last year and firms hired at a slower pace in June. However, a sub-index tracking delivery times of goods was above the 50-mark for the first time since February 2021 and at its highest in nearly three years, signalling an easing in supply chain pressures.

Commenting on the June factory PMI numbers, Rahul Bajoria, MD & Chief India Economist, Barclays, said: “India’s June manufacturing PMI continued to hold up, despite elevated cost pressures. Still, global uncertainties and moderating demand could weigh on the growth outlook in the coming months. In our view, the decline in the PMI is not large enough to suggest the economy is slowing; we see it as resilient and holding off rising inflation pressures. Still, activity will face tightening domestic financial conditions and a weaker global growth outlook, which could weigh on economic recovery."

“The details show that moderation in the headline PMI was driven by a dip in new orders and output. Export orders slowed down sharply in June, and the trend could continue, as higher inflation, export restrictions and growth worries weigh on global demand. Elevated input costs remain a concern, but both the input and output costs moderated, which is against the broad trend showing entrenched inflationary pressures," he added. 

 

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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