Factory growth down to 18-month low in December, know why

Indian manufacturing industry ended 2023 on shaky ground, at least the data for manufacturing output suggests so. India's factory growth decelerated to an eighteen-month low in December, driven by a weak rise in new orders and output. The HSBC India Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell to 54.9 in December from November's 56.0.

The reading was above the 50-mark separating growth from contraction for the 30th straight month.

"India's manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month," said Pranjul Bhandari, chief India economist at HSBC.

"Growth of both output and new orders softened, but on the other hand, the future output index rose since November."

Manufacturers were at their most upbeat in three months about the coming year thanks to better customer relations and new enquiries, according to the surveyed firms.

However, after remaining largely robust last year, demand softened a little last month and the new orders sub-index fell to 57.3, its lowest since June 2022, while output rose at the slowest pace in 14 months.

International demand was also less robust with export growth slowing to a six-month low. That impacted hiring which increased at the slowest rate in nine months.

Both the input costs and prices charged indexes were little changed from the previous month. However, the pace of output inflation surpassed that of input prices for a fourth consecutive month, indicating factories were still able to pass on additional costs to customers.

The Reserve Bank of India was not expected to start easing monetary policy until the quarter ending September of this year, which is when inflation is seen touching the central bank's medium-term target of 4.00 per cent. 

With Reuters Inputs