Services PMI plunges to 18-month low

PMI for manufacturing sector also fell to its lowest level in April since November 2011

In April, growth in India’s services sector fell to its lowest level since October 2011, when output contracted, according to the HSBC Purchasing Managers’ Index (PMI) released today.  Analysts said the data would prolong the wait for  signs of economic recovery policymakers had hoped to see.

The services sector is the largest in the Indian economy, accounting for more than 60 per cent of the country’s gross domestic product (GDP), if construction is included in the sector. Services PMI fell to 50.7 points in April. In October 2011, it was 49.1 points. A reading of more than 50 points shows growth, while below it indicates contraction. In March, services PMI was 51.4 points. The average PMI reading in the quarter ended March stood at 54.3 points.

Companies that participated in the PMI survey said the slow growth reflected weak gains in new work.

Earlier, data showed in April, PMI for the manufacturing sector had fallen to its lowest since November 2011. For the manufacturing and the services sectors together, the composite index fell to 50.5 points in April, also the lowest since October 2011. In March, the composite index stood at 51.4 points.

In the quarter ended December 2012, when GDP growth fell to 4.5 per cent (the lowest in about three years), the services sector grew just 6.02 per cent, against 8.09 per cent in the corresponding period 2011, when the economy grew six per cent. Analysts said if the PMI data for the services sector were corroborated by official GDP data, all talk of green shoots of economic recovery might fall flat. However, April was only the first month of the financial year, and one should wait for more data to ascertain a trend, they said. In fact, companies in the PMI survey were optimistic about growth in output in the short term.

In 2012-13, the economy is estimated to have grown a decade-low of five per cent; the actual data is expected by this month-end. For this financial year, the government has pegged growth at 6.1-6.7 per cent. Service providers participating in the survey stated extreme (hot) weather and challenging market conditions as the factors behind the fall in growth.

Also, new work across the private sector expanded moderately — the slowest in 18 months. HSBC chief economist Leif Eskesen said activity in the services sector decelerated in April, led by slow growth in new business. “This led to a slowdown in employment growth and allowed businesses to better keep pace with their order books.”