India’s economy ends 2024 with solid momentum as business grows

India’s private sector output grew at the fastest pace in four months, preliminary readings from a survey showed, helping the economy end 2024 on a positive note underpinned by sturdier demand in services and manufacturing and record jobs growth.

Asia’s third-largest economy grew a softer 5.4% last quarter, but easing inflation is expected to spur demand among private sector firms, improving the outlook for next year.

Monday’s HSBC’s December flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.7 this month - matching August’s reading - after dropping to 58.6 in November.

The 50-level separates growth from contraction and the business activity index has been above 60 in all but three months this year. Such strength hasn’t been seen since 2008 when the global financial crisis hit, suggesting strong private sector expansion.

“The small rise in the headline manufacturing PMI in December was mainly driven by gains in current production, new orders and employment,” said Ines Lam, economist at HSBC.

“The expansion in new domestic orders quickened, suggesting a pick-up in growth momentum in the economy.” A stronger rise in demand was mainly reflected in the PMI for the dominant services sector, which rose to a four-month high of 60.8 from 58.4 in November, while the index for manufacturing was 57.4, up from 56.5 last month.

Service providers led the rise in sales with the new business sub-index touching the highest since January. Improving international demand for goods and services also boosted sales with the former recording a faster increase than the latter.

That improved the business outlook for 2025 and overall optimism rose to its highest since September last year and prompted companies to ramp up hiring additional staff at the fastest pace since the survey began in late 2005.

Both manufacturing and services posted a new peak for employment generation.

Inflationary pressures eased in December after two consecutive months of steeper rises. However, firms again increased selling prices albeit at a slower pace than November’s near 12-year high.

That will provide some relief to newly appointed Reserve Bank of India Governor Sanjay Malhotra after consumer inflation came in lower than expected at 5.48% last month with economists betting on a rate cut in February 2025, a Reuters poll found.

India’s factory growth cooled in November yet maintained a strong pace, leading to significantly improved optimism despite demand easing a bit due to higher price pressures, a business survey found.

Asia’s third-largest economy expanded a lacklustre 5.4% in the July-September quarter, official data showed on Friday, led by tepid growth in manufacturing and consumption. The rate was much lower than the 6.5% expected in a Reuters poll.

The HSBC final India manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to 56.5 last month from 57.5 in October. A preliminary estimate was far higher at 57.3.

Nevertheless, the index remained above the 50-mark separating expansion from contraction and extended the growth streak to almost three and a half years.

The output and new orders sub-indexes fell to their lowest and second lowest this year, respectively. Despite slower expansion due to competition and inflationary pressures, the upturn remained substantial on strong demand.

An uptick in demand from abroad was noticed for Indian-made goods. International demand rose at the fastest pace since July.

“Strong broad-based international demand, evidenced by a four-month high in new export orders, fuelled the Indian manufacturing sector’s continued growth”, noted Pranjul Bhandari, chief India economist at HSBC.

High demand and capacity expansion led to a robust rise in the business outlook for the year ahead, pushing the sub-index to a six-month high.

To accelerate production firms continued to hire, albeit at a slower pace than in October.

Inflationary pressures rose with both input and output prices edging up. While cost price inflation rose at its fastest since July, the increase in output prices was the most pronounced in over 11 years.

“Input prices for a variety of intermediate goods - including chemicals, cotton, leather, and rubber - rose in November, while output prices soared ... as rising input, labour, and transportation costs were passed on to consumers”, added Bhandari. India’s inflation rate rose to 6.21% in October, a 14-month high and breaching the Reserve Bank of India’s target range of 2-6%. Economists pushed their forecasts of a rate cut by the central bank in December to early next year, a Reuters poll showed.

Agencies