February 24, 2024


Delighting finance buffs

Coronavirus effect: India’s factory activity slumps to record low in April, shows PMI survey

India’s manufacturing activity contracted at its sharpest pace on record in April as a lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions, a private sector survey showed on Monday.

Asia’s third-largest economy is taking a huge hit from the ongoing nationwide lockdown, which started on March 25, and its gross domestic product is expected to shrink for the first time since the mid-1990s this quarter, a Reuters poll showed last month.

That was despite the government announcing a spending package of 1.7 trillion Indian rupees ($22.4 billion) and a significant easing in monetary policy by the Reserve Bank of India.

The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, plunged to 27.4 last month from March’s 51.8, by far its lowest since the survey began in March 2005 and its first time below the 50-mark separating growth from contraction in nearly three years.

“After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April,” noted Eliot Kerr, an economist at IHS Markit.

“Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions.”

With new orders and output shrinking at the steepest pace since at least early 2005 factories cut jobs at the fastest rate in the survey’s history, signalling a high chance of recession.

And indicating major supply-side disruptions, a sub-index tracking supplier’s delivery times declined to a level not seen since the survey began.

A record slump in both input and output prices, suggesting a sharp fall in overall inflation which has held above the Reserve Bank of India’s medium-term target of 4{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} for six months, failed to stoke demand.

That gives scope for the central bank, which has already cut its repo rate and reverse repo rate by 75 basis points and a cumulative 115 basis points respectively, to ease further.

Despite the huge slump in activity, optimism about the coming 12 months improved from March’s four-and-a-half year low but was still below the long-term average.

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