Inflation worries drag sentiment down to 27-month low, with just 4% of firms expecting growth a year from now
Inflation worries drag sentiment down to 27-month low, with just 4% of firms expecting growth a year from now
Inflation pressures dragged India’s manufacturing sector’s growth down to the lowest level in nine months, and dampened business confidence sentiment to a 27-month low in June, as per the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) which slid to 53.9 from 54.6 in May.
A reading of 50 on the PMI indicates no change in level of activity from the previous month. “Factory orders and production rose for the twelfth straight month in June, but in both cases the rates of expansion eased to nine-month lows,” S&P Global said in a note.
Export orders rise
New export orders rose for the third successive month in June and employment rose for the fourth successive month, albeit at a slight pace. While stronger client demand sustained order books, growth was restricted by acute inflationary pressures as per the participants whose inputs are collated for the PMI through a survey.
The manufacturing sector displayed encouraging resilience on the face of acute price pressures, rising interest rates, rupee depreciation and a challenging geopolitical landscape, said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence Unit.
“Yet, there was a broad-based slowdown in growth across a number of measures such as factory orders, production, exports, input buying and employment as clients and businesses restricted spending amid elevated inflation,” she noted.
Although the outlook for the Indian manufacturing industry remained positive midway through 2022, sentiment slipped to a 27-month low, S&P Global said, with less than 4% of panellists forecasting output growth in the year ahead. The vast majority expect no change in output from present levels a year on, citing inflation as the key concern.
The rate of input cost inflation faced by producers remained historically high, but was the slowest in three months, as were the pass-through of costs through higher charges to consumers. Firms reported increases for a wide range of inputs, including chemicals, electronics, energy, metals and textiles.
“There was positive news regarding supply chains, with the latest results showing the first shortening of input lead times since the onset of COVID-19. This seemed to have curbed the upward pressure on input costs, with purchase prices and output charges increasing at sharp but slower rates during June,” Ms. De Lima said.
“Companies nevertheless remained very concerned about inflation, a key factor that dragged down business confidence to a 27-month low,” she concluded.
