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Business conditions deteriorated in June: PMI Index

Output and new orders fall further, but at slower rates

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IHS Markit India Manufacturing PMI, Economic downturn, Coronavirus outbreak, Regional lockdown, Manufacturing sector

Latest PMI® data pointed to another deterioration in business conditions faced by Indian goods producers during June. The downturn was primarily driven by sharp contractions in both output and new orders, with regional lockdown extensions severely hampering demand conditions. That said, both rates of decline eased considerably from May, continuing the trend towards stabilisation since April's historic lows. Meanwhile, firms continued to reduce staff numbers at a marked pace.

At 47.2 in June, the seasonally adjusted IHS Markit India Manufacturing PMI® surged from 30.8 in May. Despite the rise, the latest reading pointed to a third successive monthly decline in the health of the manufacturing sector, albeit one that was far softer than registered in April and May.

Contributing to the further deterioration was another sharp contraction in output at the end of the second quarter. Panellists continued to suggest that coronavirus-related restrictions had constrained production capacity. That said, the rate of contraction eased considerably from May and was the softest since an expansion in March.

Another key factor behind the decline in operating conditions was a further decrease in new business during June. The latest contraction extended the current sequence of falling sales to three months, although the pace of reduction decelerated to the slowest since the introduction of lockdown measures in March.

Overall demand received little support from international markets, with new export orders falling for the fourth month in a row. Although the rate of decline eased to the softest since March, it remained sharp overall. When explaining the reduction in demand, panellists often cited the coronavirus pandemic.

In line with the continued deterioration in demand conditions, Indian goods producers recorded a further reduction in employment during June. Despite easing from May's survey record, the rate of workforce contraction remained among the quickest since data collection began in March 2005.

Similarly, reduced output requirements saw firms continue to cut their purchasing activity, with the result extending the current run of contraction to four months. However, the latest decline in input buying was the slowest since March and only marginal overall.

On the cost front, input prices faced by Indian manufacturers continued to fall. The rate of decrease accelerated from May, but remained far softer than April's survey record.

Amid falling cost burdens, manufacturers opted to continue cutting their average output prices. Despite easing for the second month in a row, the rate was solid overall. Anecdotal evidence suggested that firms reduced charges in an attempt to support sales.

Looking forward, firms remained positive towards the 12-month business, with sentiment strengthening to a four-month high. That said, the degree of optimism remained far weaker than the historical average amid fears of a prolonged economic downturn due to the coronavirus outbreak.

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