In what may dash hopes of economic recovery in the second half of this fiscal, services growth fell to a 13-month low in November after a six-month bottom figure in the previous month, shows an HSBC purchasing managers' index (PMI) released today. Services (including construction) are a dominating sector of the Indian economy, constituting over 60% of GDP.
PMI stood at 52.1 points in November against 53.8 points in October, as new business grew at a slower pace, partly reflecting the fewer working days due to Diwali, according to a statement released today by Markit Economics, a financial information firm which compiles PMI data.
Reading over 50 points shows expansion, while below it denotes contraction.
Even as PMI manufacturing stood at a 5-month high in November at 53.7 points, its services counterpart dragged down the Composite Output Index at a 12-month low of 53.2 points for the month.
If slowdown in PMI services sustains and matches official numbers of the tertiary sector in the quarter of this fiscal, all theories of green shoots of economic recovery for the second half may be belied, economists said.
Anis Chakravarty, senior director, Deloitte, said that services slowing down, as indicated by PMI, is believable, as it shows it is just keeping on with the second quarter trend.
Even as services sector did not grow significantly high in the recent quarters, it was this sector only which provided support to the GDP growth, as industry slowed.
In the second quarter ended September 2012-13, services (including construction) expanded by 7.10%, whereas industry grew just 1.16%. This somewhat enabled the economy to grow by 5.3% in the second quarter of this fiscal, which matched the expansion in January-March, 2011-12, a three-year low.
PMI is a month-on-month calculation, so it does not show base effect. However, official service data for the third quarter may not get comfort from this count as well since services in the GDP numbers in the third quarter went up to 8.6% compared to 8.5% in the second quarter of that year.
In September and October last year, PMI services showed contraction.
However, it was the services sector that performed much better than manufacturing in PMI for the first two quarters of this fiscal. Manufacturing averaged 54.9 points in the first quarter of this fiscal, which fell to 52.8 in the second quarter. Services PMI, on the other hand, went up from 53.9 points in Q1 to 55 points in Q2.
However, dynamics has changed in the two months of the third quarter of this fiscal. PMI manufacturing averaged 53.3 points in October-November, while services stood at an average 52.9 points.
However, Chakravarty doubted PMI manufacturing numbers. “But manufacturing showing high numbers does raise questions,” he said.
Markit Economics, however, said the degree of optimism in the service sector stood at a three-month high in November.
The survey of 350 firms indicated that growth in private sector’s new total business was the slowest in one year. Services firms linked growth in new orders to rising demand, increased marketing and maintained quality of services. Services PMI is based on a single question to respondents: “what is the actual change in business activities at their companies compared to a month ago?”
“Business activity expanded at a slower pace in November and new business also grew at a slower clip, which in both cases may partly reflect the fewer working days due to the Diwali”, said Leif Eskesen, chief economist, India & ASEAN at HSBC.
November data signaled persistent inflationary pressure in the Indian private sector as input and output prices both increased. Rates of inflation were sharp and solid respectively. According to respondents raw materials, fuel, gold, transport and labour costs were higher.
“Combined with the stronger growth and inflation readings from the manufacturing PMI, these numbers suggest that the RBI should be inclined to continue to hold fire,” said Eskesen, ahead of RBI monetary review later this month.
The wholesale price index-based inflation stood at 7.45% in October, down from 7.81% in September.