May 2021: Factory Activity at 10-Month Low

The second wave of the Covid-19 pandemic and lockdowns imposed by states hit India’s industrial activity in May, with manufacturing activity dropping to the lowest in 10 months, forcing producers to reduce inventory and accelerating job shedding.

The IHS Markit purchasing managers’ index for manufacturing fell to 50.8 in May from 55.5 in April. A reading above 50 indicates expansion, while below that signals contraction.

Besides a significant loss of growth momentum, intensification of the Covid-19 crisis had a detrimental impact on demand and companies observed the slowest rises in new work and output for ten months.

“The Indian manufacturing sector is showing increasing signs of strain as the Covid-19 crisis intensifies,” IHS Markit economics associate director Pollyanna De Lima said.

However, the impact of the pandemic and associated restrictions seen on the manufacturing sector is “considerably less severe than during the first lockdown when unprecedented contractions had been recorded”, De Lima said.

India’s manufacturing output rose 6.9% in the January-March quarter when the gross domestic product increased 1.6%. In the fiscal year ended in March, the economy shrank 7.3%, the sharpest in history.

As per IHS Markit, there was also a substantial slowdown in growth of input purchasing and another round of job shedding. Concerns surrounding the pandemic restricted business confidence towards the year-ahead outlook for production.

“Growth projections were revised lower, as firms became more worried about the escalation of the pandemic and local restrictions,” De Lima said, adding that the overall degree of optimism towards the year-ahead outlook for output was at a ten-month low, a factor which could hamper business investment and cause further job losses.

While firms scaled up production volumes last month, the pace of expansion was modest as the upturn was curbed by the surge in Covid-19 cases and difficulties in securing raw materials.

“Covid-19 restrictions and a lack of new work led companies to reduce their payroll numbers further,” IHS Markit said, adding that the decline in employment was accelerated from April.

Manufacturers became increasingly concerned about the negative impacts of the pandemic on operations. Companies foresee output growth in the year ahead, although the overall level of positive sentiment dipped, according to the survey report.

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