Services sector growth slipped to four-month low in July: S&P Global PMI

Business sentiment worsens with just 5% firms expecting growth a year from now

India’s services sector growth hit a four-month low as demand weakened amid inflation pressures, as per the S& S&P Global India Services Purchase Managers’ Index (PMI) which moderated to 55.5 in July from an 11-year high of 59.2 in June. A reading of 50 on the PMI indicates no change in business activity levels.

While the domestic market remained the key source of sales growth, international demand for Indian services worsened further, S&P Global said, with new global orders seeing the sharpest drop in six months.

Input cost inflation remained a concern for businesses, rising sharply even though at the slowest pace since February, as respondents for the survey-based index reported higher expenses on food, fuel, materials, staff, retail and transportation as the key sources of inflationary pressures.

Firms continued to raise prices to pass on these costs to customers, even though the output charge inflation came off a five-year high in June. “…The latest rise was solid and the seventeenth in successive months,” S&P Global said.

While job creation was negligible in services sectors across India, it was the second month in a row that new jobs were reported after a decline in employment numbers in May. “The rate of job creation was fractional and broadly similar to June. The vast majority of firms left payroll numbers unchanged amid a lack of need to raise workforces,” the PMI revealed.

While sales growth in July was dampened by fierce competition and unfavourable weather, overall business sentiment tanked further, with only 5% of companies forecasting output growth in the year ahead, compared to 9% in June. 94% of firms predicted no change in business activity from current levels.

“In line with concerns that economic growth has weakened as we enter the second fiscal quarter, service providers signalled subdued confidence towards the medium-term business outlook,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, who flagged ‘a noticeable loss of momentum for the Indian service economy’ in July.