Manufacturing PMI Activity In February Has Been Stable

Manufacturing PMI Activity In February Has Been Stable
Manufacturing PMI Activity In February Has Been Stable
Deepika Asthana - 10 March 2020

The economy is going through an interesting and rather dichotomous time. Economic growth has clearly stalled and businesses are facing pressure both on the top-line as well as on the bottom-line. At the same time, high-frequency indicators have been increasing on a strong clip, showing some optimism.

The manufacturing Purchasing Managers Index (PMI), which had been on an uptrend since October 2019, softened modestly in February 2020 to print at 54.5, from an eight-year high of 55.3 in January 2020. While there was a sharp decline in manufacturing output and new exports orders, most of the decline was modest and did not portend any slowdown. While the stock of finished goods fell modestly, firms continued to buy inputs at a robust pace with purchases of stocks at three years high. In contrast to the manufacturing PMI, the Services PMI surged to a seven-year high of 57.5 in February 2020 rising for the fifth consecutive month and from 56.1 in January 2020 due to a spike in business orders, renewed export demand and strengthening business confidence.

So far, the impact of COVID-19 has been negligible on the Indian economy. However, as this prolongs and extends beyond China, one can expect to see depletion in inventories and constraints in supply. It is likely that PMI will start reflecting this March 2020 onwards. China, not surprisingly, witnessed a sharp drop in manufacturing PMI in February 2020, a likely production outage in India’s auto industry indicates an imminent impact. Interestingly, it not just India but also countries like Australia, Indonesia, and the Philippines that are yet to witness the economic impact of the COVID-19 virus. This delayed impact could stem from the fact that countries like India import more from China and sit downstream in the supply chain versus countries like Korea or Japan who export more to China and sit upstream in the supply chain.

So far, it seems that the economic impact of COVID-19 is more likely to be temporary in nature. Manufacturing is expected to be one of the key drivers of India’s GDP growth and signs of any stability in the sector augur well for the country’s future growth.

Latest Issue

Outlook Money
July 2022

Askmoney



Advertisement*
Advertisement*
ADVERTISEMENT*