Covid slows India’s May manufacturing growth

Issac John /Dubai Filed on June 1, 2021
Employee work on the engines of Toyota cars inside the manufacturing plant of Toyota Kirloskar Motor in Bidadi, on the outskirts of Bengaluru, India. — Reuters file photo

Factory activity powered ahead in Europe last month and stayed strong in Asia as demand grew

India’s manufacturing sector growth slowed down in May to a 10-month low as the second wave of Covid-19 impacted demand and order flow, but elsewhere in Asia and Europe firms ramped up activities, a monthly survey said on Tuesday.

“The Indian manufacturing sector is showing increasing signs of strain as the Covid-19 crisis intensifies. Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the slowest rates of increase in ten months. In fact, all indices were down from April,” said Pollyanna De Lima, economics associate director at IHS Markit.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) inched up to 50.8 (index reading) in May same as 55.5 in April.

The latest index reading pointed to a marginal improvement in business conditions that was the weakest in the current ten-month sequence of expansion.

The detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown when unprecedented contractions had been recorded, said IHS Markit’s May PMI report.

“New orders, the largest sub-component of the headline figure, increased at a marginal pace that was the slowest since the current stretch of expansion started in August 2020. According to panel members, demand was suppressed by the Covid-19 crisis,” the report said.

“Firms scaled up production volumes during May, but the pace of expansion was modest in the context of historical data. In fact, the rise was the weakest in the current ten-month period of growth. Anecdotal evidence indicated that the upturn was curbed by the escalation of the pandemic and difficulties in securing raw materials.”

Global factory activity

Meanwhile, factory activity powered ahead in Europe last month and stayed strong in Asia as demand grew, surveys showed, but rising raw material costs and supply bottlenecks posed a headache for business and weighed on the recovery in export-driven economies.

European manufacturers ramped up activity at the fastest monthly pace in PMI survey history but a spike in Covid-19 infections in some countries continued to disrupt supply chains.

Eurozone manufacturing activity would have been even faster without those constraints, but IHS Markit’s final eurozone manufacturing PMI still rose to 63.1 in May from April’s 62.9.

In Britain, a deluge of new orders helped drive a record increase in factory growth, and its IHS Markit/CIPS manufacturing Purchasing Managers’ Index rose to 65.6, the highest since the survey started in 1992.

“The business surveys continue to suggest the economy, and particularly the manufacturing sector, is going gangbusters, and are consistent with our view that the recovery will be very strong in Q2 and the second half of the year,” said Andrew Kennigham at Capital Economics.

The euro area was expected to emerge from a double-dip recession this quarter, but a projected rise in price pressures this year was not expected to be sustainable, with inflation forecast to ease substantially.

China’s factory activity meanwhile expanded at the fastest pace this year on solid demand at home and overseas, sharp rises in input prices there and strains in supply chains crimped some firms’ production.

Factory activity in Japan and South Korea moderated in May, underscoring the fragile nature of their recoveries.

“A spread of new Covid variants is already having a negative impact on supply chains. If this situation persists, it would hit Asian manufacturers that had been scrambling to diversify supply chains out of China,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute.

“Asia’s recovery has been driven more by external than domestic demand. If companies have trouble exporting enough goods, which bodes ill for the region’s economies,” said Nishihama.

South Korea’s PMI slowed from April and although growth extended into an eighth straight month the pace of input price increases hit a 13-year high.



Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.

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