India PMI October 2019

India: Private sector falls further into contraction in October

The composite Purchasing Managers’ Index (PMI) produced by IHS Markit dipped to 49.6 in October from 49.8 in September, leaving it further below the 50-threshold that separates contraction from expansion in the private sector.

The services PMI increased to 49.2 in October, up from 48.7 in September, although still below the all-important 50-mark. Total sales of service businesses were broadly unchanged in October, after contracting in September for the first time in over one-and-a-half years. In terms of where demand was coming from, businesses reported weak demand domestically but an increase in demand externally, although the upturn in external demand was the slowest in four months. In terms of employment, headcounts increased for the 26th month running, although at the joint-lowest rate in this 26-month period. Headcount growth was likely so slow in part because business confidence regarding the 12-month outlook was at one of the lowest levels in 14 years. Turning to prices, input inflation accelerated in October, while output charges increased only very modestly.

On the manufacturing side, the PMI fell to 50.6 in October from 51.4 in September. Output increased at the slowest pace in two years, partly due to the slowest sales increase in 25 months. New export sales increased at a slightly faster pace in October than in September, suggesting that the domestic market was the principal point of demand weakness. Input purchasing decreased in October for the third consecutive month, which partly explained a fractional drop in input prices. On the other hand, selling prices continued to rise in October and at the fastest pace in seven months. Looking at employment, headcounts grew for the 19th month on the trot in October, although October’s increase was the second slowest in this 19-month period. Regarding the outlook, businesses became the least confident about the 12-month production outlook since February 2017.

Pollyanna de Lima, principal economist at IHS Markit, reflected on October’s manufacturing PMI reading, and offered a possible reason for cheer: “Following five successive cuts to India’s benchmark rate, and an apparent lag in how quickly this feeds through to consumers, the impending lowering of commercial lending rates could potentially revive private consumption and help to shift growth higher as we approach the year end. Goods producers may then be encouraged to resume investments and create jobs, which combined with cuts to corporate taxes could bode well for the outlook.”

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