Expansion in India’s manufacturing sector hit its slowest in 15 months in August as demand and output grew at their weakest pace in a year and cost pressures increased, a private sector survey showed.
The survey comes after official figures showed India’s economy grew at an annual rate of 5.0% last quarter, its slowest in more than six years and significantly weaker than 5.7% in a Reuters poll.
The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, declined to 51.4 in August from July’s 52.5, its weakest since May 2018. However, it has remained above the 50-mark separating growth from contraction for more than two years.
“August saw an undesirable combination of slowing economic growth and greater cost inflationary pressures in the Indian manufacturing industry,” Pollyanna De Lima, principal economist at IHS Markit, said.
A sub-index tracking overall demand hit its weakest in more than a year and foreign orders increased at their slowest pace in 16 months.
Input costs rose at their quickest pace in nine months while the rate of increase in output prices was slower than in July, suggesting firms’ profit margins were squeezed.
With inflation predicted to remain below the Reserve Bank of India’s medium-term target of 4% for the rest of this year, the central bank is expected to ease further in October to boost a slowing economy.
“Another worrying sign was the first drop in input buying for 15 months, which reflected a mixture of intentional reductions in stocks and shortages of available finance,” De Lima said.
“Until manufacturers are willing to loosen the purse strings, it’s difficult to foresee a meaningful rebound in production growth on the horizon.”
Adding to the gloomy picture, tighter margins and demand growth easing meant firms barely increased headcount.
However, firms remained upbeat about the coming 12 months. Expectations of future output rose to their highest level in more a year, the survey showed.