Strong inflationary pressures and weaker demand led to a sharp slowdown in growth in India’s main services sector in July, further lowering business forecasts. The S&P Global India Services Purchasing Managers’ Index fell from 59.2 in June to 55.5 in July, its lowest level since March.
However, for the past year, the index has been above the 50 mark that separates growth from contraction, and the July figure is above the long-term average.
Moreover, despite falling from an 11+ year high reached in June, the mostly positive rating was supported by solid domestic demand.
India is struggling with high inflation, which has reached an almost decade-long high and is made worse by rising commodity prices, like many other countries. The fall in the rupee has increased imported inflation much more.
“The latest results revealed many positive elements. Commercial activity continued to grow strongly, with an equally robust increase in new business, as new service offerings and marketing efforts paid off. There has, however, been a noticeable stall for India’s services economy as demand has been dampened somewhat by competitive pressures, high inflation and adverse weather conditions,” said Pollyanna De Lima, Deputy Director of Economics at S&P Global Market Intelligence.
The Reserve Bank of India (RBI) started its tightening cycle in May, later than most of its peers, but is expected to price in subsequent hikes to fight inflation.
Although it hit its lowest level in four months, the new business sub-index performed well by historical standards as domestic demand remained flat. New export orders have contracted for the 29th consecutive month since the start of the coronavirus pandemic.
As in June, few companies created new jobs last month as they had enough employees to meet demand.
Although they hit their lowest level since February, input costs rose significantly and remained above the long-term average. Labor, retail, food, fuel, supplies, tools and transportation costs were all on the rise.
Companies opted to pass on some of the extra costs to customers, and while that pace was down from a nearly five-year high set in June, it was still above trend.
The factory PMI rose to its highest level since November, supporting the strong overall performance of the S&P Global India Composite PMI Output at 56.6. The composite PMI, however, was down from 58.2 in June and a four-month low.
(With contributions from Reuters)
First post: STI