June factory growth at 9-month low as inflation worries bite

Reuters | | Updated on: Jul 01, 2022

Price pressures weigh on demand and output

Factory output expanded at its slowest pace in nine months in June as elevated price pressures continued to dampen demand and output, according to a private survey, which also showed business confidence was at its lowest in over two years.

Although inflation eased in May to 7.04 per cent after touching an eight-year high of 7.79 per cent in April, a meaningful decline is not seen anytime soon even as the Reserve Bank of India is expected to continue with aggressive rate hikes.

While the Manufacturing Purchasing Managers' Index, compiled by S&P Global, remained resilient, it fell to a nine-month low of 53.9 in June from May's 54.6, lower than the Reuters poll median prediction of 54.5.

It has been above the 50-level separating growth from contraction for a year, indicating growth in the sector has remained solid.

"The Indian manufacturing industry ended the first quarter of fiscal year 2022/23 on a solid footing, displaying encouraging resilience in the face of acute price pressures, rising interest rates, rupee depreciation and a challenging geopolitical landscape," noted Pollyanna De Lima, economics associate director at S&P Global Market.

"Yet, there was a broad-based slowdown in growth across a number of measures such as factory orders, production, exports, input buying and employment, as clients and businesses restricted spending amid elevated inflation."

New orders and output grew at their weakest rate since September last year, and firms hired at a slower pace in June.

However, a sub-index tracking delivery times of goods was above the 50-mark for the first time since February 2021 and at its highest in nearly three years, signalling an easing in supply chain pressures.

That partly helped both input and output prices, which increased at a slower rate last month, but a respite from the cost of living crisis still looks a distant possibility.

Indeed, business optimism declined to its lowest since the onset of the pandemic over two years ago.

Published on July 01, 2022
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