The India's private sector growth slowed in June due to a lack of demand in both manufacturing and services, the latest data on the HSBC Flash Purchasing Managers' Index (PMI) showed. The weakness was a result of a gradual slowdown in business activity after a few months of robust growth, but business activity still remained in positive territory.
Key Highlights
- India’s private sector growth moderated in June as composite PMI dropped to a three-month low.
- Softer demand, slower hiring, and weaker business confidence weighed on economic activity growth.
The HSBC Flash India Composite PMI Output Index fell to 57.4 in June from 59.3 in May and was the lowest in three months. The latest reading shows the strength of growth has weakened under less favourable demand conditions, although the index has stayed above the 50-point level that marks the border between growth and contraction.
Services and Manufacturing Activity Slow
The moderation was attributable to the growth in both services and manufacturing activities. The Services Business Activity Index fell to 57.3 in June from an index of 59.8 in May, and manufacturing output fell to 57.4 from 58.0. The headline PMI for manufacturing also fell to 54.5, indicating a slower rate of growth in manufacturing activity.
HSBC's chief India economist, Pranjul Bhandari said, "Production growth slowed down as the activity of building up inventories wobbled after a few months of robust expansion. But exports remained a positive force, especially for companies that had increasing international orders."
Export Demand Remains a Key Support
Export demand increased during the month, in spite of the downbeat domestic demand scenario. International business activity was boosted by services firms and manufacturing companies continued to enjoy demand from overseas, albeit at its lowest level since March 2023.
Exports in the private sector slowed in the current month to their lowest level in 21 months, reflecting mixed global demand conditions, even as activity continued to be strong in some markets.
Also Read: India Exports Jump 18% to $45.2B in May; Trade Deficit Hits $28.21B
Hiring Activity and Business Confidence Weaken
Companies took a more conservative stance on their hiring practices as new orders increased at a slower rate. Job growth in the private sector also slowed to the lowest level in six months as both manufacturing and service providers experienced weaker hiring.
June's business sentiment was also reduced. Overall optimism of firms over the next 12 months has declined to its lowest level since January, but growth remains a priority. Optimism was at a near four-year low, especially for manufacturers who were more cautious due to lower purchasing activity and lower inventories.
Inflation Pressures Continue to Ease
On the cost front, businesses reported higher input prices driven by chemicals, fuel, food products, gas and metal costs. However, input cost inflation eased for the third consecutive month and reached its weakest level since January.
The softer rise in costs allowed companies to moderate price increases for customers, with output price inflation falling to a six-month low. Economists believe easing cost pressures could provide some support to business margins and future economic activity in the coming months.
Although growth remains robust by historical standards, the latest PMI data suggests India’s private sector is entering a phase of more measured expansion as businesses navigate softer demand, cautious hiring trends and a gradually improving inflation environment.
