Factory activity hits 18-month low in December as orders shrink; optimism rises to a three-month high

A softer rate of increase in factory orders and output contributed to the manufacturing activity declining to its lowest level in 18 months in December, showed the results of a private survey released Wednesday.

The HSBC India purchasing managers’ index of manufacturing eased further to 54.9 in December compared with 56 in the previous month. However, the easing had no impact on optimism, as the year-ahead outlook rose to a three-month high.

“India’s manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month. Growth of both output and new orders softened, but on the other hand, the future output index rose since November,” said Pranjul Bhandari, chief India economist, HSBC.


A reading of over 50 signifies expansion.

The third quarter of FY24 also marked the lowest PMI reading of 55.5 for any quarter since Q1 of FY23. A double digit increase in manufacturing output had lifted growth in the second quarter to 7.6%. The GDP growth is likely to ease to 6.3% in the second half of the year compared with 7.7% in the first half.

Experts indicate further easing in PMI in coming months.

“There may be some further easing in momentum, as external demand remains weak, which may weigh on domestic manufacturing activity. Domestic demand however remains,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.

The 400 manufacturers participating in the survey also reported a slowing down of new business, as they noted a decline in demand for certain products.

“The rate of expansion softened to the weakest since October 2022 even as it remained above its long-run average,” the release stated.

The growth in export orders also hit its joint-slowest pace in eight months, even as firms recorded gains from Asia, Europe, the Middle East and North America.

The easing of business activity also contributed to employment remaining largely stable in December.

However, there were some gains visible on the cost front. The charge inflation outpaced input inflation for the fourth consecutive month, providing better pricing power to firms.

“Survey participants that hiked their fees in December mentioned the pass-through of recently absorbed cost burdens to clients,” the release said.

The rate of input inflation fell to its second-weakest level in nearly three and a half years, with firms reporting increases in prices of chemicals, paper and textiles.

Lower levels of input inflation is expected to provide respite, keeping core CPI inflation lower.

“The major story emerging out of December PMI print is stable input-price pressures. This is in line with core CPI inflation in November, which moderated to the lowest level since March 2020, and we expect it to remain soft in the near term,” Bajoria said.

PMI declines further

• PMI manufacturing 54.9 in December vs 54.9 in previous month
• Year-ahead outlook at three month high
• Inflation eases further
• Employment remains steady

(Manufacturing PMI)
Jul-22	56.4
Aug-22	56.2
Sep-22	55.1
Oct-22	55.3
Nov-22	55.7
Dec-22	57.8
Jan-23	55.4
Feb-23	55.3
Mar-23	56.4
Apr-23	57.2
May-23	58.7
Jun-23	57.8
Jul-23	57.7
Aug-23	58.6
Sep-23	57.5
Oct-23	55.5
Nov-23	56
Dec-23	54.9
Note: A value of over 50 denotes expansion
Source: S&P Global