MUMBAI: After a sharp loss of momentum in March due to the Iran war, private sector manufacturing rebounded in April, opening the new fiscal year on a stronger footing. The recovery was largely driven by a pickup in new orders and output. However, overall growth remained subdued, with the latest reading still the second slowest since 2022.
The improvement is notable given the challenging cost environment: both input and output prices climbed at their fastest rates since August 2022 and the past six months, respectively.
According to the HSBC survey released Monday, there was quicker rise in new orders and output, and so did hiring along with a rebound in business confidence in the reporting month. Accordingly, the manufacturing purchasing managers’ index (PMI) improved to 54.7 in April from 53.9 in March, underscoring an improved domestic momentum but still the second-slowest reading in operating conditions in nearly four years, as companies continued to indicate that the Iran war is exerting upward pressure on inflation with input and output cost rising at the quickest rates in 44 or since August 2022 and six months, respectively. A reading above 50 separates expansion from contraction.
According to the survey, exports were a bright area with new orders expanding sharply and the pace of growth reaching a seven-month high.
“Manufacturing PMI rose to 54.7 in April, up from 53.9 in March, but still marking the second-slowest improvement in operating conditions in nearly four years. Spillovers from the Iran war are becoming more evident, particularly through inflation: input costs increased at the fastest pace since August 2022, and output prices rose at the quickest rate in six months. Even so, output, new orders including exports and employment all grew moderately, pointing to continued resilience,” said Pranjul Bhandari, chief economist at HSBC India.
The upturn in April was driven by the index’s two largest sub-components: new orders and output, both of which grew from March levels, but trailed readings in at least three-and-a-half years. Manufacturers indicated that advertising and demand resilience supported sales and production, but that growth was hampered by competitive conditions, the Iran war and a reluctance among clients to approve pending quotes.
“Amid reports of higher prices for aluminium, chemicals, electrical components, fuel, leather, petroleum products and rubber, average cost burden rose further in April. Survey respondents often attribute hikes to the Iran war. The overall rate of inflation climbed to its highest since August 2022. Subsequently, goods producers lifted their fees to the greatest extent in six months,” the survey said.
Consumer goods were the only category to see a slowdown in cost inflation, but the rate of increase here nevertheless surpassed those seen elsewhere. This sub-sector also topped the rankings for output charge inflation, the survey added.
Although manufacturers purchased additional raw materials and semi-finished items in April, the rate of expansion retreated to the weakest in almost two-and-a-half years, the survey said, adding input inventories rose at the slowest pace in almost five years. Growth was constrained by attempts among some firms to keep stocks lean due to subdued sales performances, qualitative data showed. On the other hand, finished goods inventories rose for the first time in six months, albeit at a very tepid pace, it added.
“Despite only a marginal increase in outstanding business volumes, manufacturers recruited additional workers at an aggressive pace taking the rate of job creation the strongest in ten months. Hiring growth reflected expansion plans," the survey said.
Exports remained resilient in the month with new orders expanding sharply to reach a seven-month high thanks to the better demand from several countries, including Australia, England, France, Japan, Kenya, China, Saudi Arabia, and the UAE, said the survey.
The survey also found manufacturers remaining optimistic about better growth with optimism reaching the second-highest level since November 2024.