Coronavirus impact: Feb manufacturing PMI slips marginally to 54.5

Coronavirus scare keeps companies spooked and business optimism low

The manufacturing sector maintained strong growth momentum for a second straight month in February, even as the outlook remained bleak because of the coronavirus outbreak, said a monthly survey released on Monday.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) stood at 54.5 in February, slightly lower than the eight-year high of 55.3 in January. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

The beleaguered sector has continued to strengthen ever since PMI fell to a two-year low of 50.6 in October. However, official data shows that contraction remained entrenched in the manufacturing sector till December. 

India’s overall industrial production fell 0.3 per cent in December. However, some economists see an increase in core sector output as a sign of moderating decline. Core sector expanded 2.2 per cent in January, a mild increase from 2.1% in December.

As of February, manufacturing production increased at a similar pace to January’s 91-month high, as companies reacted positively to new business gains and favourable market conditions. At the sub-sector level, growth was led by consumer goods makers, followed closely by intermediate goods producers, as new orders rose at a faster clip.

February data showed that exports contributed to the expansion in total sales, with Indian companies noting the second strongest improvement in international demand for their goods since November 2018. In end-2019, manufacturers had fallen back to demand from overseas markets to rescue them at times of lax domestic demand. Foreign orders expanded for the 28th month in a row, the survey said. 

However, the subdued mood over the coronavirus outbreak restricted new hiring in the sector. The increase in hiring is the weakest in last three months. In November, the survey had noted massive layoffs.

But firms continued to increase input buying as robust sales growth and higher production needs held steady. In turn, stocks of purchases continued to expand in February, with the pace of accumulation being the quickest in close to three-and-a-half years, the survey said. 

Latest data also pointed to a general lack of pressure on the capacity of manufacturers and their suppliers, with vendor performance and backlogs increasing only fractionally.

While average cost burdens increased further, inflation was moderate, one that was negligible by historical standards. Input goods like chemicals, food, metals, paper, plastics and textiles, mostly from China, continued to get costlier as China’s factories remain closed.

However, the rate of charge inflation crept upwards slowly, a trend that has been a key theme of the manufacturing PMI survey for over a year, the survey noted.

Business sentiment remained under pressure due to uncertainty over whether domestic demand would recover. “Also, alarm bells are ringing for Indian goods producers as the COVID-19 outbreak poses threats to exports and supply chains. Businesses became less confident about the year-ahead outlook for output, in turn restricting hiring activity,” said Pollyanna de Lima, principal economist at IHS Markit.