The manufacturing activity and business optimism in May stood at the second-weakest level on record in May even after the Narendra Modi-led government allowed businesses and industries to resume operations. The manufacturing PMI marginally increased from 27.4 in April to 30.8 in May despite the partial lifting of lockdown restrictions. Weaker demand in the market led to a slow output after April’s complete lockdown and consequently, firms cut staff numbers at the quickest pace since data collection began over 15 years ago, said the IHS Markit report released today. The coronavirus-led lockdown has led to a sharp deterioration in business conditions during May.
In a sign of further demand weakness, new orders placed with goods producers continued to fall after April’s record contraction. Weak demand from international markets also added to the woes of the manufacturing sector as new businesses from overseas plunged further in May. The further fall in manufacturing output in May is particularly poignant given the record contraction in April, which was driven by widespread business closures, said Eliot Kerr, Economist at IHS Markit. The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis, with demand remaining subdued while the longevity of the pandemic remains uncertain, Eliot Kerr added.
The report has also highlighted that global measures to arrest the spread of coronavirus have continued to hurt exports. On the back of low expectations on demand conditions, firms have cut back production, which forced manufacturers to severely cut down worker numbers in May. Meanwhile, on the price front, both input costs and output charges were low as suppliers and manufacturers themselves offered discounts in an attempt to secure orders.
However, Indian manufacturers remained optimistic about the one-year business outlook in May as they expect a return to growth once all coronavirus-related restrictions are lifted. Even as the Indian economy was struggling through a prolonged phase of lockdown before the outburst of coronavirus, the manufacturing PMI remained above 50 since 2018, which showed that businesses and manufacturers were optimistic about the recovery.