Services PMI slips to 51.1 in December on weaker expansion of new business

06 Jan 2015 Evaluate

The activity in Indian services sector, which accounts for around 60% of country’s GDP, slipped to 51.1 in December, which is lower than the five year high index reading of 52.6 for November. Nevertheless, the reading still is indicative of the expansion since any number above the watershed ’50’ mark means expansion. The HSBC India Services PMI averaged 51.38 index points from 2012 until 2014. It reached an all-time high of 57.50 in January 2013 and recorded a low of 44.60 index points in September 2013.

The overall slowdown in activity growth was mirrored by a weaker expansion in service sector new business in December. Additionally, despite increase in the manufacturing PMI to the highest level in two years in December, the composite output of the private sector, comprising both manufacturing and services, grew moderately. Composite PMI was down to 52.9 points in December from 53.6 points in November. Although, a weaker expansion in new business for the service sector was witnessed, the latest increase was the eighth in as many months. Notably, across the private sector as a whole, growth of new work inflows remained solid, led by a further acceleration at manufacturers.

On the inflation front, the rate of charge inflation was fractional overall, reflecting relatively muted cost pressures. Although, the input cost faced by Indian services firms rose in December, the rate of cost Inflation was only modest overall and mild in the context of historic survey data. Overall, private sector output prices also rose at the weakest pace since October 2010.

In a positive development, staffing levels in the Indian service sector, reversing the trend recorded in the previous month, increased in December, with rise in service sector payroll numbers more than offsetting a contraction at goods producers, as employment rose across the private sector overall. Besides, average tariffs charged by services firms increased in December, following a reduction in the previous month. The survey also pointed that all but the Financial Intermediation sub-sector saw an expansion in order books, which is key for funding a meaningful pick-up in economic growth.

Notably, though the service index growth grew at a weaker pace, there was solid growth witnessed in private sector activity, led by faster expansion of manufacturers. Additionally, inflation pressures remained at historically muted levels, with new business across private sector increasing for eight month in row. Encouragingly, business confidence strengthened in December, despite slowdowns in growth of activity and new orders. Also, the degree of positive sentiment among Indian service providers was robust overall, albeit weak in comparison with the long-run series average.

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