India's manufacturing sector activity showed a noticeable deceleration in December 2024, marking its most subdued pace of expansion in two years. This slowdown was revealed by a key business survey released on Monday, which pointed to weaker export orders, moderated job creation, and a significant dip in business optimism.
Key Survey Findings: A Broad-Based Slowdown
The headline figure, the HSBC India Manufacturing Purchasing Managers' Index (PMI), fell from 56.6 in November to 55.0 in December. While any reading above the critical 50-point threshold indicates expansion, the December figure represents the weakest improvement in the sector's health since December 2022. It is crucial to note that despite the decline, the current PMI reading remains above its long-run average, suggesting the sector is still in growth territory, albeit at a slower pace.
The survey, compiled from responses from 400 manufacturing companies, identified several contributing factors. A notable slowdown in new export orders was a primary drag on overall growth. Concurrently, employment generation within the sector moderated, indicating more cautious hiring practices among firms.
Fading Confidence and Underlying Pressures
Perhaps one of the most striking revelations from the survey was the state of business sentiment. Optimism about the year-ahead outlook for production faded to its lowest level in nearly three and a half years. This decline in confidence suggests that manufacturers are growing wary of potential headwinds, which could influence future investment and production plans.
The composite PMI index is a vital leading indicator derived from metrics such as new orders, output, employment, suppliers' delivery times, and stocks of purchases. The December dip signals that while demand persists, its momentum has softened across several fronts.
Implications and Sector Outlook
This data presents a nuanced picture of India's industrial economy as it closed the year. The sustained expansion above 50 is a positive sign, reflecting underlying resilience. However, the sequential slowdown highlights challenges, particularly in the external demand environment impacting export orders.
The moderation in employment growth could have broader implications for domestic consumption if it persists. Furthermore, the sharp decline in business sentiment to a multi-year low warrants attention, as it may foreshadow a more cautious approach to capacity expansion and inventory building in the coming months. Analysts will closely monitor the January data to see if this deceleration is a temporary blip or the beginning of a more sustained trend of cooling growth in one of the economy's key sectors.
