India: The private sector expands at a slower pace in March, although business optimism improves
April 4, 2019
The composite Purchasing Managers’ Index (PMI) produced by Nikkei and IHS Market moderated to 52.7 in March from 53.8 in February, moving closer to the 50-point threshold that separates expansion from contraction in the private sector.
The services PMI decreased to 52.0 in March from 52.5 in February, which indicates the 10th consecutive month of expansion in the services sector, albeit at the slowest pace since September last year. March’s slowdown came on the back of subdued growth in new business orders, leading total sales to grow at a weak pace. Backlogs of work also increased at the second-fastest pace since October 2017, with businesses reporting that slow client payments were holding back the completion of orders. Employment growth continued in March, although at a moderated pace compared to February. In terms of prices, input cost inflation eased in March, contrasting a small uptick in output price inflation, supporting corporate profit margins overall. Looking ahead, service businesses became more optimistic about future operating conditions, partly due to expectations of higher inbound tourism and a greater range of service offerings being lined up.
On the manufacturing side, the PMI decreased to 52.6 in March from 54.3 in February, representing the sector’s slowest expansion since October last year. The slowdown in March came on the back of a weaker increase in new orders, with businesses citing competitive pressures and electoral uncertainty burdening order books. This was somewhat responsible for pushing total output growth in March downward from February. In terms of employment, headcount growth slowed to an eight-month low. Meanwhile, input purchasing grew at a ten-month low in March, while post-production inventories fell for the 20th month in a row. Looking at prices, input cost and output price inflation both remained in March, although they were low compared to recent readings. Overall, despite a weaker PMI result in March, businesses became more optimistic in the month regarding future operating conditions, as companies were confident about capacity expansion plans and more favorable public policies after the general elections.
Author: Edward Gardner, Economist