The manufacturing sector accounts for just one fifth of the global economy and its share is shrinking further in developed countries. Yet, the investing community spends much time on assessing the health of the sector. The manufacturing sector, being at the forefront of economic activity, provides the direction in which the overall economy will go. This explains why the manufacturing sector grabs the attention of the investor community.
The business surveys on the manufacturing sector have often helped in providing first reliable signals of turning points in the economy. One such key indicator is the manufacturing PMI which shows what the participating purchasing managers think about future capex, job creation and overall demand of goods.
A steep contraction in the latest manufacturing PMI numbers for April wasn’t surprising given the prevalent worldwide lockdown to tackle COVID-19 pandemic. However, a contraction of 20-30% versus a contraction of 50% should be looked upon separately.
While among the major economies, the manufacturing PMI numbers have contracted for all. However, the shrinkage of almost 50% in India’s April manufacturing PMI was steepest among the top 10 economies. This shows the damage caused by the lockdown has far deeper consequences on the Indian economy than its developed counterparts.