India's manufacturing sector showed its weakest growth in December 2024, with the Manufacturing Purchasing Managers’ Index (PMI) dipping to 56.4 from 56.5 in November. Despite easing cost pressures and solid job creation, the data indicated a slowdown in demand.

The HSBC Final India Manufacturing PMI, compiled by S&P Global, highlighted that although the PMI slightly dropped, it remained above the long-term average of 54.1, signalling ongoing growth. Both output and new orders continued to rise, but the pace of improvement slowed. Job creation accelerated to its fastest rate in four months, with approximately 10% of companies adding staff, while fewer than 2% reduced their workforce.

“India’s manufacturing activity ended a strong 2024 on a softer note, with signs of a moderate slowdown in the industrial sector. The expansion in new orders was the slowest of the year, suggesting weaker future production growth. However, export orders saw an uptick, rising at the fastest pace since July. Input prices eased somewhat, concluding a year marked by sharp cost pressures,” said Ines Lam, Economist, HSBC.

November's PMI had already shown a decline to 56.5, a joint 11-month low, from 57.5 in October, indicating a manufacturing slowdown. Despite this deceleration, the PMI remained above the 50-mark, signalling continued sector expansion.

The slowdown was attributed to heightened competition and rising price pressures, with input cost inflation reaching its highest level since July. Notably, selling prices saw the steepest increase since October 2013.

The manufacturing PMI is a key economic indicator that gauges activity levels in the manufacturing sector, based on a survey of purchasing managers. It provides insights into business conditions, including production, new orders, employment, supplier delivery times, and inventory levels. The PMI is closely monitored as an early indicator of economic health, helping businesses, policymakers, and investors track manufacturing trends and broader economic activity.

India's GDP growth slowed to 5.4% in Q2 FY25, marking the weakest performance in nearly two years. Key factors contributing to the slowdown included sluggish manufacturing growth (2.2%) and reduced private consumption, driven by high inflation and borrowing costs. Headline inflation exceeded the Reserve Bank of India's target range of 4-6%, eroding purchasing power. Additionally, government spending declined due to fiscal constraints amid the election year.

While urban demand softened due to high food prices and weak wage growth, rural consumption showed signs of recovery. Agriculture grew by 3.5%, bouncing back from a prolonged slowdown.

The RBI revised its annual growth forecast down to 6.6% from 7.2%, signalling caution regarding economic momentum. Policymakers now face the challenge of balancing inflation control with stimulating demand.

 (Business Standard)