Goods exports need a healing touch

In contrast, the same measure for the manufacturing sector declined to 50.5 from 51.2 in January. This decline is not surprising.

Rahul Bajoria, managing director and head of emerging Asia (ex-China) economics at Barclays, said, “The PMI findings on manufacturing exports are now being met with hard data, which is already indicating weakness in India’s goods exports.” Is.” Surveys showed that while other Asian exporters were bearing the brunt of weak global growth, India’s manufacturing exports stood out.

The good news is that thanks to services exports, India’s composite (weighted average of manufacturing and services) New Export Orders Index managed to stay in the expansion zone at 50.5 in February. “The strength of (India’s) services exports is driven by software services exports, which account for about 50% of total services exports and the US is the main destination,” said Gaura Sen Gupta, economist at IDFC First Bank.

Interestingly, as Chart 1 shows, not only in India, service exports are holding fort in other sectors as well. But the problem, at least in India’s case, may emerge from looming recessionary risks that do not bode well for IT services exporters. Bajoria cautioned that although a major contraction in India’s services exports is not expected, it could moderate further if recession risks persist.

Year-ahead outlook or business optimism as estimated by the PMI, the Composite Future Output Index, showed that Indian companies were less confident about business prospects than Asian and global counterparts. (See Chart 2).

One reason could be that pricing power is yet to improve meaningfully despite a moderation in commodity cost inflation trends. In February, most manufacturers and service providers left output charges or selling prices unchanged, the PMI report showed. This means that companies feel that demand is not yet strong enough to sustain a sharp increase in prices.

“For the near term, in the next three months, we expect goods exports from India and Asia to be at a weak level. This is because the price increase by goods exporters is nominal,” Bajoria said. Therefore, while the construction of the new export orders index is still in expansion territory, economists warn that Indian goods exporters have also started feeling depressed. They feel near term contraction in PMI’s New Export Orders Index cannot be ruled out.

Against this backdrop, an important monitor to watch is China’s reopening. Madan Sabnavis, chief economist at Bank of Baroda, said, “When China was in lockdown, it was expected that exports would pick up, but we were not able to capitalize on that in a meaningful way, except in a few categories.” The idea that with China’s reopening, it would try to flood the global market with cheap goods to make up for the lost opportunity, given its competitive advantage and whatever little demand there was, was grabbed by them. Will go

What’s more, the interest rate hike cycle of major central banks is still underway. As earlier rate hikes continue to reflect on economic activity, which occurs with a lag, global growth will further slow down. “We expect global growth to slow down as the impact of rate hikes by central banks last year is slowly being felt on growth. Hence, we see some slowdown in export growth this year,” Sen Gupta said. The road to recovery for merchandise exporters could be long and tiring.