India PMI February 2018

India: Business conditions deteriorate in February

Business conditions worsened in February, with the manufacturing PMI showing weaker activity growth in the sector and the services PMI suggesting activity contracted markedly in the month. The main culprit behind both readings was weaker demand, which in part may have reflected tighter lending standards stemming from recent bank sector developments. The composite Purchasing Manager’s Index (PMI), produced by Nikkei and IHS Market, declined from 52.5 in January to 49.7 in February.

The manufacturing PMI recorded a back-to-back decrease to 52.1 in February from 52.4 in January, moving further away from the five-year high figure recorded in December. Despite the sequential decline, the index remains above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since last August.

The headline figure moderated due to the softest expansion in new orders in four months. Both foreign and domestic demand was slightly weaker than in the previous month. In line with easing demand, output growth moderated in February but remained solid overall, with survey participants noting favorable economic conditions. Employment growth was modest, albeit slightly above January’s figure, while purchasing activity growth softened to its weakest since October. Regarding prices, input inflation was at its strongest in a year on the back of higher commodity prices, with firms largely able to pass these costs onto consumers.

On a worse note, the Nikkei services PMI dropped below the 50-point threshold in February following two months of growth. The index declined from 51.7 in January to 47.8 in February, the lowest log since last August.

Firms stressed weak market demand and competitive conditions as the reasons behind a contraction in new business in February. Similarly, output fell for the first time in three months. Nonetheless, in a sign that this may be a blip in the series data rather than a downturn in operating conditions, service-providing firms were particularly upbeat regarding incoming work, with employment growth accelerating to its strongest since June 2011. According to survey respondents, this reflected positive expectations regarding output growth. On prices, fuel inflation increased firms’ costs, and they were only partially able to roll these onto consumers.

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