Services sector growth slumps to 10-month low on weak demand
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Growth in the services sector, which accounts for about 55% of India's GDP, slumped to a 10-month low in September due to low demand and weakness in international orders, an industry survey conducted by S&P Global showed on Friday.
India’s Purchasing Managers’ Index (PMI) for services fell to 57.7 in September from 60.9 recorded in the previous month. It slipped below 60 for the first time in 2024. A PMI print above 50 indicates growth in the sector while below 50 shows contraction.
The growth in total new business, international sales, as well as output, slumped to the lowest level since late-2023. This was due to competition, cost pressures and changes in consumer preferences, S&P Global noted in its monthly report.
One factor that constrained total sales growth was a softer increase in new export orders. The rate of expansion moderated to the weakest in 2024 so far. Still, some firms noted gains from Asia, Europe, North America, the Middle East and the US, the rating agency said.
“The new business index followed a similar trajectory as the headline figure, indicating the possibility of softer output growth in the coming months,” said Pranjul Bhandari, Chief India Economist at HSBC.
Among the main positive outcomes seen in September were solid job creation, strengthening business confidence and the weakest uptick in selling prices in over two-and-a-half years.
Fierce competition somewhat restricted charge inflation across India's service economy in September. Services output prices increased at the slowest pace in over two-and-a-half years. This was in spite of a quicker increase in overall business expenses.
Surveyed companies reported an increase in outlays on electricity bills, food and other materials in September when compared with the previous month. “Companies’ margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified,” Bhandari said.
The solid increase in services employment seen since May was extended to September. Service providers reported the recruitment of full- and part-time workers, with both permanent and temporary contracts being offered.
Business sentiment in September was better than the previous month. Businesses were more confident in the outlook for output. In some cases, optimism was supported by projects pending approval and efficiency gains.