Manufacturing PMI eases to three month low in December amid Covid fears

Data showed that manufacturing PMI fell to 55.5 in December from 57.6 in November

India’s manufacturing lost some momentum in December, easing to a three-month low after hitting a 10-month high in November, amid fears that the rapidly spreading third wave of the pandemic may hit consumer sentiment and output.

The data released by analytics firm IHS Markit showed the purchasing managers’ index (PMI) for manufacturing fell to 55.5 in December from 57.6 in November. A reading above 50 indicates expansion in economic activity and a number below that signals contraction.

“Companies continued with their stock-building initiatives, as evidenced by ano¬ther robust upturn in buying levels. Business confidence strengthened, but sentiment was again dampened by concerns surrounding supply-chain disruptions, Covid-19 and inflationary pressures,” the data analytics firm said.

Although input costs rose sharply, the rate of inflation eased to a three-month low in December. Companies in turn restricted passing on additional cost burdens to clients, with factory gate charges increasing at the slowest pace in over a year.

Amid reports of strong demand, fruitful marketing, and new client wins both in domestic and overseas markets, manufacturers observed a further increase in new orders during December.

“The upturn was sharp, de¬spite being the slowest since September. Similarly, production rose at a sharp pace that was nevertheless the weakest in three months,” IHS Markit said.

Pollyanna De Lima, economics associate director at IHS Markit, said manufacturers were optimistic that output would continue to incr¬ease in 2022, but business sen¬ti¬ment was somewhat ta¬med by worries surrounding the path of the pandemic, inflationary pressures, and lingering supply chain disruptions.

“There were tentative signs that inflationary pressures started to subside, but companies weren’t particularly confident that such trends would continue. Despite easing in December, input cost inflation was still running at one of its highest rates in around seven and a half years. The vast majority of firms nevertheless decided to keep their selling prices unchanged, in order to boost sales, with overall charges up only marginally in December,” she added.

According to the latest Google Mobility data for December 30, in Delhi, retail and recreation, public transport, workplace visits declined by 19 per cent, 7 per cent, and 17 per cent, respectively. However, the Nomura India Business Resumption Index inched up to 120.3 for the week ended January 2 from an upwardly revised 120.2 during the preceding week.

“India seems to be on the cusp of a third wave … Maharashtra, Delhi and West Bengal are at the forefront, but case numbers in other states are also rising sharply,” Nomura said in a statement.

The Omicron spread is expected to adversely impact the contact-sensitive services sector more than the manufacturing sector. During the second wave of the pandemic earlier this year, while manufacturing mostly held up, services contracted in May, June, and July, according to the PMI data. During the first wave of the pandemic in 2020, a contraction in the services sector was sharper than in manufacturing and took seven months to return to expansion territory.

The World Bank and Moody’s have projected the Indian economy to grow at 8.3 per cent and 9.3 per cent, respectively. ICRA last week retained its 9 per cent growth forecast for FY22. The Reserve Bank of India (RBI) has retained its projection of 9.5 per cent annual GDP growth in FY22 although it has revised downwards its December-quarter growth estimate to 6.6 per cent from 6.8 per cent, and the March-quarter growth estimate to 6 per cent from 6.1 per cent. The Indian economy expanded 8.4 per cent in the September quarter, surpassing its pre-pandemic size, as vaccination picked up pace and services activity returned to normal after the disruption caused by the devastating second wave of the pandemic in the June quarter.