Economy and Policy

India's Services Sector Growth Hits 5-Month Low Amidst Dip In Domestic Demand, Says Report

India's services sector recorded a slowdown in May, marking a five-month low in growth as domestic demand faltered

Services Sector Activity
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India's services sector growth witnessed a slowdown in May to a five-month low due to weakening domestic demand, according to a survey. However, the picture wasn't all dull as exports grew at a record pace, and job creation reached a 21-month high.

The final HSBC India Services Purchasing Managers' Index, compiled by S&P Global, dropped to 60.2 in May from April's 60.8, contrary to earlier prediction of a rise to 61.4. Despite this, the number remained well above 50, signifying continued growth for the 34th consecutive month.

“India’s service activity rose at a slightly softer pace in May, with domestic new orders easing slightly, but remaining robust, implying strong demand conditions and successful advertising. New export orders surged at a record pace, with broad-based demand from across the globe," said Maitreyi Das, global economist at HSBC.

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In the same month, the new business sub-index, measuring demand, remained robust but recorded its slowest growth rate of the year due to competition and the impact of heat waves across the nation. Despite this, export growth hit a record high since the sub-index was introduced nearly ten years ago.

Indicators of recovery in China and steady economic activity in the U.S. imply that global demand might keep rising. Strong sales have improved the business outlook for the coming 12 months to an eight-month high. This might prompt service companies to hire at a rapid pace, since August 2022.

"On the price front, cost pressures ticked up in May led by higher raw material and labour costs. Firms were only able to transfer a part of the price rise to customers. Good news is the level of optimism about the year-ahead outlook rose at the fastest pace in eight months, leading service firms to increase their staffing levels. Overall composite output rose at a slightly slower pace, led by slower rises in both factory production and service activity,” Das added.

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