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India’s manufacturing PMI expands in May despite inflation headwinds; export orders at 11-year high

At 54.6 in May, little-changed from 54.7 in April and higher than experts expectation of 54.2, the seasonally adjusted S&P Global India Manufacturing PMI pointed to a sustained recovery.

India PMI Manufacturing, manufacturing
At 54.6 in May, manufacturing PMI remained little-changed from 54.7 in April. (representational image)

India’s manufacturing sector expanded in the month of May and ‘sustained strong growth’ despite historically high inflation, according to latest survey findings published Wednesday. At 54.6 in May, little-changed from 54.7 in April and higher than experts expectation of 54.2, the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) pointed to a sustained recovery across the sector.

Factory output was boosted by jump in international orders, which was the highest in over 11 years i.e. since April 2011, the survey said. In response to demand resilience, manufacturers in India continued with their efforts to rebuild stocks and hired extra workers accordingly. Last month, the rate of employment growth picked up to the strongest since January 2020, the survey added.

“While firms appear to be focusing on the now, the survey’s gauge of business optimism shows a sense of unease among manufacturers. The overall level of sentiment was the second-lowest seen for two years, with panelists generally expecting growth prospects to be harmed by acute price pressures,” Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said.

Inflation, slowing growth major headwinds in 2022

“India’s manufacturing PMI remained resilient in May, indicating that economic activity is holding up despite rising headwinds to growth. Still, intensifying price pressures, shrinking corporate profitability, the tightening of domestic financial conditions and risks to global growth outlook remain major headwinds to the recovery in growth,” Barclays said.

There has been a gradual yet consistent easing in momentum since the beginning of current year 2022, and high global commodity prices add to downside risks to growth ahead, Madhavi Arora, Lead Economist at Emkay Global said, commenting on the PMI readings.

The findings of the survey comes as India reported slow GDP growth of 4.1% in the January to March quarter. Economists expect growth to slow down this fiscal year due to spillovers from the Russia Ukraine war which is expected to put pressure on the supply chain and contribute to rising prices. Emkay and Barclays have cut GDP growth outlook to 7 per cent in FY 2023. However, the GDP growth in the first quarter of FY 2022 is expected to be in double-digits, largely benefiting from lower base effect, economists say.

Manufacturers continue to pass on high prices to consumers

In May, manufacturers continued to pass on additional cost burdens to clients and increased selling prices at the fastest rate in over eight-and-a-half years. However, they were able to secure new work despite lifting selling prices at the fastest rate in over eight-and-a-half years as additional cost burdens continued to be transferred to clients. Although softer than in April, the rate of inflation remained historically elevated in May. Companies reported higher prices for items such as electronic components, energy, freight, foodstuffs, metals, and textiles.

Amid reports of new business gains, sustained improvements in demand and looser COVID-19 restrictions, manufacturers continued to scale up production in May, according to the survey findings. Going ahead, the majority of  panelists polled by the survey (ie 88 per cent) foresee no change in output growth from present levels, around 9 per cent of panelists forecast output growth over the coming 12 months.

Economists expect RBI to front-load rate hikes in coming months to tame rising inflation. The central bank raised the repo rate by 40 basis points in May and is expected to take it to pre-pandemic level of 5.15 per cent by August.

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