Falling demand forced the services sector to slow in November, with the S&P Global Purchasing Managers’ Index (PMI) falling to a one-year low of 56.9 from 58.4 in October. However, the situation in the industry has eased as prices have fallen.
The share of services in gross value added (GVA) is about 54%. PMI is advance data released before official data is released. Government data released on November 30 showed that the services sector fell to 5.8% in the July-September quarter of the current fiscal year (Q2FY24).
“India’s services sector lost further growth momentum midway through the fiscal third quarter, but we still see strong demand for services driving new business introductions and output. The current pace of expansion takes into account respective long-term averages “Looking very healthy, the outlook for business activity remains bright even as optimism fades due to rising inflation expectations,” said Pollyanna De Lima, associate director of economics at S&P Global Market Intelligence.
One positive of the downturn is prices. Cost inflation also fell back to its lowest level in eight months in November, although the increase was higher than the series trend, according to survey participants involved in preparing the PMI. Consumer services companies experienced the highest input cost inflation, while sales prices rose significantly in the finance and insurance categories.
“Service providers in India have seen some relief on the cost front, with input price inflation falling back to its lowest level in eight months. As a result, few companies have raised their fees, which is likely to be a factor as 2023 draws to a close. Further boosting demand,” De Lima said. However, inflation expectations are higher.
Qualitative data on future output issues suggested rising inflation expectations had dampened optimism in November, participants said. However, services companies still expect activity to grow in the coming year as demand conditions improve. Marketing initiatives and customer relationship management were also cited as prospective opportunities. Finally, the latest results point to broadly stable levels of business excellence for service companies. This inhibits recruitment to some extent. This also affects the work scene.
“Net employment still grew in November, but the pace of expansion was limited and at its weakest level since April,” the survey reported. De Lima said services companies were hiring in light of stable backlog levels indicating a lack of pressure on operating capacity. Becoming more cautious is understandable. “Net employment still rose in November, but the pace of job creation was minimal and the slowest in seven months,” she concluded.