July manufacturing PMI falls to 46; overall activity shrinks for 4th month

Job losses continue as domestic demand struggles as lockdowns return in states and export orders vanish

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India manufacturing growth | Service PMI | India Services PMI

Indian manufacturing slowed down in July after slowly mending for two months as lockdowns to contain coronavirus cases weighed on demand and output and raised the chances of a sharper economic contraction, a private business survey showed on Monday.

Output contracted in July as regional lockdown extensions across the country severely held back demand, said the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey on Monday.

Manufacturing PMI stood at 46 in July, down from 47.2 in June. In PMI parlance, a score above 50 means expansion and below that denotes contraction. PMI fell to a historic low of 27.4 in April, but had been steadily climbing up since.

“The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months. Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won’t see a pick-up in activity until infection rates are quelled and restrictions can be further removed,” said Elliot Kerr, economist at IHS Markit.

Kerr said that further spikes in cases may bring further lockdowns which would derail a recovery in the sector.

Businesses collapsed and exports slowed when India was locked down end March to contain the coronavirus and worldwide economies collapsed. The PMI survey showed manufacturers cut jobs yet again, albeit at a similar pace than June.

New orders fell for the fourth-month running. Also, with a dearth of labour and raw material, supply chains could not be established, said industry bodies. Similar to the trend for output, the pace of decline accelerated from June, but remained slower than at the height of the current crisis.

When explaining falling sales, panellists often cited prolonged closures at their clients’ businesses, the survey said.

The situation was made worse by plunging demand from international markets. India’s biggest overseas markets for merchandise shipments such as the United States, gulf nations and the European Union have been hit hard by the ongoing pandemic.

Survey participants commented that international clients were hesitant to place orders while the duration of the pandemic remained uncertain. That said, the latest reduction in exports was the softest for four months.

The PMI survey however showed that manufacturers remained optimistic towards the one-year business outlook in July, with sentiment strengthened for the second month to a five-month high.