India’s factory activity growth dips to 14-month low in Feb due to cooling demand

BENGALURU: India’s manufacturing activity grew at its weakest pace in over a year last month due to cooling demand, but employment generation rose at a healthy pace and inflation eased, a private survey showed on Monday.

The softer manufacturing data suggests the growth rebound in Asia’s third-largest economy may be short-lived after the government said gross domestic product expanded 6.2% last quarter from 5.6% in the previous one.

Goods production, which accounts for less than a fifth of overall output grew 3.5% in October-December, only a slight rise from 2.2% in the previous quarter.

The HSBC final India Manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to 56.3 in February - its lowest since December 2023 - from 57.7 in January.

A preliminary estimate was much higher at 57.1.

However, the index has been in expansionary territory - above 50 - for 44 consecutive months, the longest streak since July 2013, which marked 52 months of continuous growth.

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Domestic demand waned slightly with the new orders and output sub-indexes falling to 14-month lows although factories reported an improvement in technology investment and commissioning new projects. International demand softened last month from an over 14-year high in January.

“Although output growth slowed to the weakest level since December 2023, overall momentum in India’s manufacturing sector remained broadly positive in February,” said Pranjul Bhandari, chief India economist at HSBC.

“Robust global demand continued to boost growth in the Indian manufacturing sector, which increased its purchasing activity and employment.”

Manufacturers expanded their workforce, extending employment growth to a year albeit at a slightly slower pace than in January when they added a record number of jobs in the survey’s 20-year history.

Input costs rose at the slowest in 12 months and the pace of increase in prices charged eased to a five-month low, suggesting some of the charges were passed on to clients.

Buoyant demand and greater labour costs underpinned the hike in fees, HSBC said.

Retail inflation slowed to a five-month low in January, supporting expectations of another rate cut from the Reserve Bank of India (RBI) after it eased policy last month to boost an economy expected to grow at its slowest pace in four years this fiscal year.

RBI Monetary Policy Committee member Nagesh Kumar told Reuters late last month the weakness in manufacturing, which is important for job creation, was a major factor along with moderating inflation in the decision to cut interest rates.

Despite a slower expansion in goods production, the business outlook for the coming year was little-changed from January and remained optimistic underpinned by favourable demand trends, healthy customer numbers and marketing efforts, the survey showed.