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Friday, May 20, 2022

Defying rising costs, factory PMI kicks off FY23 on robust note

A PMI number greater than 50 shows expansion in business activity, and less than 50 indicates contraction. PMI is a leading indicator, giving analysts a good sense of the direction of a country’s economy. The PMI in manufacturing is obtained based on the results of a survey sent to a set of manufacturing companies.

By: ENS Economic Bureau | Mumbai |
Updated: May 3, 2022 5:15:37 am
Manufacturing (Representative image, source: Pixabay)

India’s manufacturing industry clocked a strong start to financial year 2022-23, posting marked and accelerated expansion in new orders and production despite a rise in inflation. Rising from 54.0 in March to 54.7 in April, the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) highlighted a solid and faster improvement in operating conditions across the sector, S&P Global said.

A PMI number greater than 50 shows expansion in business activity, and less than 50 indicates contraction. PMI is a leading indicator, giving analysts a good sense of the direction of a country’s economy. The PMI in manufacturing is obtained based on the results of a survey sent to a set of manufacturing companies.

According to S&P Global, international sales grew solidly, following a contraction in March. Inflationary pressures, meanwhile, intensified, owing to rising commodity prices, the Russia-Ukraine war and greater transportation costs. Input prices increased at the fastest pace in five months, while output charge inflation hit a 12-month high.

Explained

Good start, will it sustain?

A higher PMI of 54.7 in April compared with 54.0 in March indicates the manufacturing sector is poised to do well during the short-term month. But rising inflation brings along with concerns on growth, especially when there is not much pressure on operational capacities and mild job creation.

Pollyanna De Lima, Economics Associate Director at S&P Global, said: “Factories continued to scale up production at an above-trend pace, with the ongoing increases in sales and input purchasing suggesting that growth will be sustained in the near-term.”

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“Yet, the survey continued to show a lack of pressure on firms’ operating capacities alongside only mild job creation. Moreover, expectations regarding growth prospects remained subdued,” De Lima said.

“A major insight from the latest results was an intensification of inflationary pressures, as energy price volatility, global shortages of inputs and the war in Ukraine pushed up purchasing costs. Companies responded to this by hiking their fees to the greatest extent in one year. This escalation of price pressures could dampen demand as firms continue to share additional cost burdens with their clients,” he said.

In its statement, S&P Global said growth gathered momentum in the intermediate and capital goods segments, but there was a slowdown at consumer goods makers. The retreat of Covid-19 restrictions continued to support demand, according to survey participants. The rate of new order growth was marked, above trend and faster than that seen in March. Echoing the trend seen for new business, the rate of output growth quickened in April and outpaced its long-run average, it said.

Moreover, the latest rise in production took the current sequence of uninterrupted increases to ten months. April data showed a rebound in new export orders, following the first contraction for nine months in March. “The rate of increase was solid and the strongest since last July. Firms signalled a further upturn in input costs during April, with chemical, electronic component, energy, metal, plastic and textile costs reportedly higher than in March,” it said.

Increases were partly attributed to rising transportation fees and the war in Ukraine. The overall rate of inflation strengthened to a five-month high and outpaced its long-run trend. Additional cost burdens continued to be shared with consumers in April, as evidenced from another increase in selling prices.

The rate of inflation was solid and the fastest in one year. Notwithstanding supplier price hikes, and in tandem with ongoing improvements in demand, firms purchased additional inputs in April. The upturn was sharp and the most pronounced since last November. This contributed to a further increase in input inventories among goods producers. The rate of stock accumulation was sharp and the fastest in four months.

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