Services sector expands at a lower pace in June

The HSBC Purchasing Managers’ Index (PMI) for services in India fell to 54.3 points in June, against 54.7 in the previous month, indicating a slowdown in growth in the tertiary sector.

However, services sector recorded growth for the eighth month. In June, new orders and employment, along with inflation, rose.

On the back of the rise in factory output in June, the fastest in four months, the composite PMI, which tracks both services and manufacturing, rose to 55.7 points in June, compared with 55.3 in May. A reading above 50 shows expansion, while one below it denotes contraction.

For the fourth month, service providers hired more employees to reduce the backlog. The increase in payroll numbers was the strongest since June 2011, though it was below the long-run average.

 

Input prices rose sharply in June, with inflation at the same level as in May. This was reflected in output prices, as service providers passed on the rise in input costs to consumers. Output prices have increased in the services sector in every month since November 2010, said the report.

Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, said with the consistently high inflation, it was hard to build a strong case for policy rate cuts in the near term.

The Reserve Bank of India had kept key rates unchanged in the policy meet on June 18.

Eskesen said, “Businesses remained relatively optimistic about the outlook for the coming 12 months, though sentiments eased a bit from the previous month.”

Services PMI is based on data compiled from a monthly survey of about 350 private service sector companies.