India’s May PMI Slips as Manufacturing Momentum Weakens Amid West Asia Tensions

India’s private sector growth slowed marginally in May as manufacturing activity lost pace amid weaker overseas demand and supply-side pressures linked to the ongoing conflict in West Asia, according to the latest HSBC flash Purchasing Managers’ Index data compiled by S&P Global.

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The HSBC flash Composite PMI eased to 58.1 in May from 58.2 in April. Although the reading remained above the 50-mark that separates expansion from contraction, the data pointed to softer growth across the broader economy.

This moderation was mainly explained by the manufacturing sector where growth in new orders slowed sharply. The HSBC flash Manufacturing PMI fell to 54.3 in May from 54.7 in April.

Survey data showed factory orders expanded at one of the slowest rates in nearly four years, while production growth weakened to its second-lowest level since mid-2022.

Services Sector Shows Slight Improvement

The services economy remained relatively stable during the month and offered some support to overall private sector activity.

The Business Activity sub-index of the Services PMI climbed slightly to 58.9 in May from 58.8 in April, implying growth in domestic demand and business activity.

There was also a rise in the hiring activity sub-index as employers hired additional employees, doing so at the fastest rate in more than a year. Manufacturing employment growth, however, slowed compared with previous months.

According to the survey, business confidence across the private sector eased to a three-month low as companies assessed the impact of geopolitical tensions and rising cost pressures on future demand conditions.

Export Demand Weakens

International demand softened sharply during May, with export orders across the private sector recording their weakest expansion in 19 months.

Disruptions attributed to the turmoil in West Asia and travel uncertainty were among the main reasons behind the reduction in the demand from abroad.

The information suggested that slowing export growth has had a greater impact on the manufacturing sector than any other factor.

Despite all the uncertainties prevailing globally, the economic growth of India is expected to remain strong because of healthy consumer spending and service sector activity. However, rising geopolitical concerns, along with high prices of commodities, are adding pressure on firms.

Faster Increase in Input Costs

The rise in input costs was faster in May especially in the manufacturing sector. Companies said they increased spending on energy, steel and food inputs, adding to overall cost pressures that reached the highest level since July 2022.

Costs increased, but companies only passed part of the increase to customers. Composite-level output price inflation accelerated at the slowest pace since January, pointing to little pricing power amid weaker demand conditions.

The latest PMI data shows that India’s private sector continues to grow at a healthy pace, but growth momentum is starting to be affected by rising input costs, weaker exports and global uncertainty as we move into the new quarter.