India: Manufacturing and services hint at weak activity in Q1 FY 2016
June 3, 2016
Following a strong deceleration in April, activity in India’s manufacturing sector stabilized in May. The manufacturing Purchasing Managers’ Index (PMI), elaborated by Nikkei and Markit, edged up from April’s 50.5 to 50.7 in May. According to Nikkei, business activity in May in the manufacturing sector increased for the fifth consecutive month—as the PMI has remained above the 50-threshold that separates expansion from contraction since January—but the last two readings, which were close to 50, suggest a slowdown in the sector.
May’s result reflected an increase in new orders, while output growth continued to moderate. The export orders fell in May for the first time in 32 months. Meanwhile, employment and purchasing activity remained healthy in May as respondents to the survey indicated that they took additional staff and bought more inputs for use in the production process. Regarding the Reserve Bank of India’s latest interest rate move in April, Nikkei stated that, “so far, there is little evidence that the latest cut in the benchmark rate acted to significantly improve business conditions for manufacturers. Therefore, further stimulus may be necessary to shift the economy into a higher gear.”
In addition, the Nikkei services PMI fell further in May: it declined from 53.7 in April to 51.0. Although the reading is still above the 50-threshold that indicates expansion in the sector, the indicator fell for a second consecutive month and reached a six-month low. According to Nikkei, May’s drop reflected that growth in new business inflows was the slowest since July 2015. Moreover, although service providers took additional staff in May, the overall job creation was miniscule. Markit analysts commented that, “ongoing weakness in manufacturing and services was evident in May, with output growth losing momentum for a second straight month. Overall expansion across the two sectors was the lowest since last November, as was the case for new orders.”