 "July manufacturing PMI data contrasts India's surge with China's slump")
India’s factories maintained solid growth pace in July, while China’s output faltered for the first time in nine months.
The HSBC final India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, stood at 58.1, almost on par with June’s 58.3, and still indicative of strong expansion.
In China, the Caixin/S&P Global manufacturing PMI fell to 49.8 in July, down from 51.8 in June, marking its lowest level since October of the previous year. This contraction was a surprise to analysts who had forecast a PMI of 51.5.
The PMI is an economic indicator derived from monthly surveys of private sector companies. The index is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and employment. It is a widely used measure of the economic health of the manufacturing and service sectors.
China’s manufacturing contraction
The survey in China revealed that manufacturing output growth was the slowest in nine months, with participants attributing the decline to subdued demand and budget reductions among clients.
The drop in new orders was particularly pronounced in the investment and intermediate goods sectors, while the consumer goods sector managed a slight expansion.
The root causes of this downturn lie in China’s real estate market, which holds 70 per cent of household wealth.
House prices plummeted at their fastest pace in nine years in June, undermining consumer confidence and spending.
Impact Shorts
More ShortsThe property sector, previously a significant growth driver constituting about one-quarter of the economy, has seen its influence wane. As a result, consumers have reduced spending on big-ticket items and premium-priced goods, with car sales, a major component of retail sales, declining for the third consecutive month in June.
India’s manufacturing growth
In stark contrast, India’s manufacturing sector has benefited from government spending initiatives aimed at boosting industrial growth.
“India’s headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern,” noted Pranjul Bhandari, chief India economist at HSBC.
Domestic demand remained buoyant, as seen in healthy growth in new orders and output. Exports also rose at the second-fastest pace in 13 years, driven by strong demand from Asia, Europe, North America, and the Middle East.
The outlook for the next 12 months remains optimistic, with firms continuing to hire, albeit at a slower pace than in June.
However, the high demand has exerted upward pressure on both input and output prices. “The continuous increase in the output price index, driven by input and labor cost pressure, may signal further inflationary pressure in the economy,” Bhandari warned.
With inputs from Reuters
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