India's Factory Activity Growth Hits 14-Month Low in February 2025 Amid Cooling Demand
India's manufacturing sector experienced its slowest growth pace in over a year during February 2025, primarily due to cooling demand conditions. Despite this slowdown, several positive indicators suggest the sector maintains overall momentum, including healthy employment generation and easing inflation pressures.
Manufacturing PMI Data Shows Mixed Signals
The HSBC final India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, declined to 56.3 in February from January's 57.7, marking its lowest level since December 2023. This figure came in significantly below the preliminary estimate of 57.1, indicating a more substantial slowdown than initially projected.
Despite the dip, it's worth noting that the manufacturing index has remained in expansionary territory (above 50) for 44 consecutive months – the longest streak since July 2013, which recorded 52 months of continuous growth. This remarkable consistency reflects the underlying resilience of India's manufacturing foundation.
Key Factors Behind the Slowdown
Several factors contributed to February's manufacturing deceleration:
- Domestic demand showed signs of cooling, with new orders and output sub-indexes falling to 14-month lows
- International demand softened from January's 14-year high
- The goods production sector, which represents less than one-fifth of India's overall economic output, grew by only 3.5% in the October-December quarter
These figures align with broader concerns about the sustainability of India's recent growth rebound, particularly after GDP expanded by 6.2% last quarter, up from 5.6% in the previous period.
Positive Undercurrents Amidst Slower Growth
Despite the headline slowdown, several positive developments were evident in February's manufacturing data:
Employment Growth Continues
Manufacturers extended their workforce expansion trend to a full year, albeit at a slightly slower pace than January, which had recorded the highest job creation rate in the survey's 20-year history. This continued commitment to employment expansion signals confidence in future manufacturing prospects.
Technology Investment and New Projects
Factories reported improvements in technology investments and the commissioning of new projects, indicating ongoing commitment to capacity expansion and modernization despite temporary demand fluctuations.
Easing Inflation Pressures
Input costs rose at their slowest pace in 12 months, while the increase in prices charged to customers eased to a five-month low. This suggests improving cost management and potentially more competitive pricing, although some cost increases were still passed on to clients due to higher labor costs.
Economic Implications and RBI's Stance
The manufacturing data carries significant implications for India's economic policy, particularly monetary policy. January's retail inflation dropped to a five-month low, which, combined with manufacturing sector challenges, supported the Reserve Bank of India's (RBI) decision to cut interest rates in February.
RBI Monetary Policy Committee member Nagesh Kumar specifically cited manufacturing weakness as a major factor in the rate cut decision, highlighting the sector's importance for job creation in the Indian economy.
Optimistic Business Outlook
Despite the current slowdown in expansion, manufacturers maintain an optimistic business outlook for the coming year. This positive sentiment is underpinned by:
- Favorable underlying demand trends
- Healthy customer numbers
- Ongoing marketing efforts bearing fruit
The survey indicates manufacturers view the current deceleration as temporary rather than the beginning of a prolonged downturn.
Looking Ahead: What to Watch
For investors and market watchers, several factors will be critical in determining whether India's manufacturing sector regains momentum in the coming months:
- Impact of RBI's recent rate cut on stimulating demand
- Recovery trends in both domestic and international orders
- Continued employment generation as an indicator of manufacturer confidence
- Infrastructure and policy support for the manufacturing sector
While the 14-month low in factory activity growth raises some concerns, the continued expansion streak and positive employment trends suggest India's manufacturing sector remains on a fundamentally sound footing despite experiencing temporary headwinds.
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