India: Economic conditions deteriorate in July
August 3, 2017
India’s manufacturing sector lost steam in July, as the implementation of the goods and services tax (GST) disrupted economic activity. The manufacturing Purchasing Managers’ Index (PMI), elaborated by Nikkei and IHS Markit, plunged from June’s 50.9 to 47.9—the worst result since February 2009. As a result, the manufacturing PMI now lies below the crucial 50-threshold that separates contraction from expansion.
Looking at the details, output and new order both plunged sharply in July, at rates not seen since 2010. Higher tax rates increased cost burdens for producers and firms’ shed jobs, although at a moderate pace overall. Overall, the downturn was broad-based and likely heavily influenced by the new tax regime. Despite the poor results, firms’ remained positive and business confidence was at an 11-month high.
Meanwhile, the Nikkei services PMI also worsened, dropping from 53.1 in June to 45.9 in July—the worst result since September 2013. Output and new orders fell for the first time since January and weakened the labor market. However, the weak activity is expected to be short-lived as firms adjust to the new GST regime.