BENGALURU (Reuters) – Indian factory activity expanded at a slower pace last month as persistent pandemic-related weakness weighed on demand and output, forcing firms to cut jobs again following a brief recovery in July, a private survey showed on Wednesday.

Data on Tuesday showed Asia’s third-largest economy grew by a record annual pace of 20.1% last quarter, driven by a surge in manufacturing and a strong rebound in consumer spending, but spiking infections from the Delta variant of the coronavirus and slow vaccination rates in some states are likely to hurt growth.

The Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, fell from July’s three-month high of 55.3 to 52.3 in August, but stayed above the 50-level that separates growth from contraction on a monthly basis.

Although new orders and output expanded for a second month, growth slowed sharply in August.

“August saw a continuation of the Indian manufacturing sector recovery, but growth lost momentum as demand showed some signs of weakness due to the pandemic,” said Pollyanna De Lima, economics associate director at IHS Markit.

“Uncertainty regarding growth prospects, spare capacity and efforts to keep a lid on expenses led to a hiring freeze in August.”

Employment slipped back into contractionary territory in August after growing in July for the first time in 16 months, indicating the job market is far from pre-pandemic levels.

Shortages of raw materials and higher freight fees continued to put pressure on input costs, forcing firms to increase prices at the fastest pace since May, indicating inflation would remain elevated.

However, that was not expected to prompt the Reserve Bank of India to tighten monetary policy, as support for economic growth continues to be the central bank’s main priority.

Still, optimism weakened in August as companies were concerned about inflation and the pandemic’s lingering impact.

“The 12-month outlook for production remained positive, though confidence faded amid worries concerning the lasting scars of the pandemic and the adverse impact of rising costs,” added De Lima.

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