India's private sector activity experienced a significant slowdown in July, reaching a four-year low according to HSBC's Flash PMI survey, as geopolitical tensions in West Asia and escalating inflationary pressures impacted sales and output growth.
Key Points
- India's private sector activity recorded a four-year low in July, with the HSBC Flash PMI dropping to 54.3 from 57.1 in June.
- The slowdown is attributed to weakened sales and output, exacerbated by renewed tensions in West Asia and increasing inflationary pressures.
- Growth in new orders reached its weakest pace in nearly four-and-a-half years, primarily affecting the services sector.
- Despite the overall slowdown, manufacturing regained some momentum, and export growth accelerated across both manufacturing and services.
- Input costs and output prices intensified across both sectors, with the overall increase in output prices rising at the fastest pace since April.
India's private sector activity slowed to a four-year low in July as growth in sales and output weakened amid renewed tensions in West Asia and rising inflationary pressures, according to HSBC's flash Purchasing Managers' Index (PMI) survey released on Friday.
Compiled by S&P Global, the index fell to 54.3 in July from a final reading of 57.1 in June.
The reading was the lowest since March 2022, when it also stood at 54.3.
However, the index remained above the 50 mark, which separates expansion from contraction, for the 60th consecutive month.
Factors Behind the Slowdown
"Growth was reportedly stymied by increasingly challenging market conditions, competitive pressures, order cancellations, reduced client enquiries and shortages of key raw materials," S&P Global said.
The HSBC Flash India Manufacturing PMI eased to 53.9 in July from 54.2 in June, while the Flash India Services PMI Business Activity Index fell to a 17-month low of 53.1 from 57.4.
"Renewed tensions in West Asia have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock," said Pranjul Bhandari, chief India economist at HSBC.
New Orders and Exports
Growth in new orders slowed to its weakest pace in nearly four-and-a-half years and remained moderate by historical standards, the survey said.
The moderation was driven largely by services activity, which expanded at its weakest pace in 53 months.
Manufacturing, however, regained some lost momentum.
Exports offered some support, with international sales growth accelerating across manufacturing and services.
The increase was sharper in manufacturing, with the seasonally adjusted export index rising by nearly four points.
At the composite level, export growth was the strongest since March.
Inflationary Pressures and Employment
Inflationary pressures intensified across both sectors, with the overall increase in output prices rising at the fastest pace since April.
"Input costs across the private sector increased at a quicker rate than in June, albeit one that remained below its long-run average. Survey participants listed several contributing factors such as fuel, labour, materials and transportation," the survey said.
Employment growth improved from June, although hiring remained modest. Service providers outpaced manufacturers in job creation.
"Finished goods and input inventories increased alongside a pick-up in purchasing volumes.
"Both output and new export orders rose, even as the overall manufacturing growth eased slightly. Price pressures firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins," Bhandari added.
Flash PMI provides an early indication of the final manufacturing, services and composite PMI readings and is based on around 90 per cent of monthly survey responses.
The final PMI data, which incorporates all responses, is released later in the month.
