Services growth lost steam in October, PMI signals

India's services economy hit a bump in Oct, with growth decelerating and inflation rising. New business grew at weakest rate since May, while international orders saw second-fastest upturn. Input costs rose, forcing firms to raise prices at strongest rate in 6.5 yrs. Composite PMI Output Index fell to 58.4, slowest rate of expansion since Mar.

A purple patch in India’s services economy this year hit a bump in October, with growth decelerating and price pressures flaring up, as per the S&P Global India Services PMI (Purchasing Managers’ Index), which dropped from 61 in September to 58.4, signalling the slowest uptick since March.

A reading of 50 on the index indicates no change in economic activity levels. While output levels as well as new business inflows rose strongly in October, the rate of expansion slowed in the face of competitive pressures and inflationary forces, as per the survey-based PMI findings.

New business grew at the weakest pace since May, with certain types of services seeing subdued demand. New jobs were created during October, but at the slowest pace in three months. The silver lining was that international orders saw the second-fastest upturn since the PMI series started in September 2014, with new orders from Asia, Europe and the US.

“There were faster increases in input costs and output charges during October, with rates of inflation outpacing their respective long-run averages. At the same time, a pick-up in inflation expectations dampened overall business sentiment,” S&P Global Market Intelligence noted.

Firms held higher food, fuel and staff costs responsible for the uptick in input costs, which compelled them to raise prices at a pace that was the strongest in close to six and a half years. The Future Activity Index fell by more than five points in October, signalling some loss of confidence surrounding the outlook for services output, amid rising inflation expectations.

“The Indian service economy continued to register impressive growth, despite the increases in business activity and new work intakes softening from September’s over 13-year highs,” said Pollyanna De Lima, the firm’s economics associate director.

With manufacturing activity also moderating in October, the S&P Global India Composite PMI Output Index also fell from 61 in September to 58.4, indicating the weakest rate of expansion since March. At the composite level, sales rose at the slowest pace since January 2023.