Services activity eases to the lowest level in a year

Services activity eases to the lowest level in a year

India’s service activity declined to the lowest level in a year, owing to a widespread slowdown in new work orders and overall output, with rising inflation expectations denting future outlook, according to a private survey released on Tuesday.

The seasonally adjusted S&P Global India Services PMI Business Activity Index eased further to 56.9 in November compared with 58.4 in the previous month.

A value of over 50 denotes expansion.

“India’s service sector has lost further growth momentum midway through the third fiscal quarter, but we continue to see robust demand for services fuelling new business intakes and output,” said Pollyanna De Lima, Economics Associate Director, S&P Global Market Intelligence.

While India’s economy registered stellar growth in the second quarter at 7.6%, compared with 7.8% in the first quarter of FY24, the services sector had slowed down considerably.

Financial services rose 6% in Q2 from last year, nearly half the 12.2% growth witnessed in Q1, whereas trade, hotels, transport, and communications grew 4.3%.

“Granular data showed widespread slowdowns in rates of growth for both new orders and output across the four broad areas of the service economy. Finance & Insurance topped the rankings, while Real Estate & Business Services came last,” S&P release stated.

The 400 service sector firms surveyed by S&P Global indicated that more service sector firms were positive about the future outlook, but inflation expectations dented some of that optimism.

ET had earlier reported that inflation is likely to stay around 6% for the next three months, owing to volatile onion prices and high inflation in pulses and cereals.

“Services firms endured a further increase in their operating expenses, with labour, food, material and transportation costs reportedly rising since October. However, the overall rate of inflation softened to an eight-month low and was below its long-run average,” S&P stated.

A slowdown in total export orders also contributed to lowering the pace of hiring in November, with net employment rising at the slowest pace since the start of the fiscal.

“Understandably, given the lack of pressure on operating capacities signalled by stable backlog levels, services firms became more cautious when it comes to hiring,” De Lima said.

Experts indicate that growth is expected to slow down in the second half of the year, but the growth in the first half has prompted upgrades to FY24 estimates above the 6.5% that the RBI has projected.

Services PMI declines
-Services PMI at the lowest level since November 2022
– Broad-based decline in services industries activity levels
– Inflation expectations dent future outlook

PMI servicesJul-2255.5Aug-2257.2Sep-2254.3Oct-2255.1Nov-2256.4Dec-2258.5Jan-2357.2Feb-2359.4Mar-2357.8Apr-2362.0May-2361.2Jun-2358.5Jul-2362.3Aug-2360.1Sep-2361.0Oct-2358.4Nov-2356.9A value of over 50 denotes expansion S&P Global
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