IHS Markit India Services Business Activity Index posted inside contraction territory for the first time in three months
The IHS Markit India Services Business Activity Index posted inside contraction territory for the first time in three months at 48.7 in September 2019. The headline figure was down from 52.4 in August and fell to its lowest mark since February 2018. Panellists indicated that the downturn stemmed from weak demand, competitive pressures and challenging market conditions.September data showed outright contractions in new business intakes and output, as lacklustre client demand weighed on the performance of the Indian service economy. Concurrently, business confidence sank to its lowest level in 31 months, while job creation moderated.
The latest results also highlighted subdued inflationary pressures in the sector, with input costs rising at the slowest rate in over two-and-a-half years.
New work intakes contracted in September, following an 18-month sequence of expansion. Where a reduction was reported, firms mentioned subdued demand conditions, unfair pricing among competitors and economic woes.
Indian services companies were able to secure new work from external markets. The increase in international orders was the seventh in consecutive months, with growth accelerating from August.
Services firms signalled higher payroll numbers in September, with the current sequence of job creation extended to 25 months. That said, the pace of employment growth was marginal and softened to the slowest since June.
Still, the rise in headcounts was sufficient to enable service providers to lower their outstanding business. Backlogs fell for the first time in 40 months, but the rate of depletion was only marginal.
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Amid reports of higher food, medicine and transport costs, input prices increased further. That said, the rate of inflation eased to the weakest in over two-and-a-half years and was negligible in the context of historical survey data. Anecdotal evidence suggested that lower fuel prices curbed the extent of the rise in average cost burdens.
Prices charged for the provision of services continued to increase in September. The rate of inflation was moderate and little-changed from August, but outpaced that seen for input costs.
September data indicated that positive sentiment among Indian service providers faded, although output growth in the year ahead was still predicted. Some firms expect to see an improvement in demand and favourable outcomes from marketing efforts, while others were worried that subdued economic conditions will linger. Overall, optimism dropped to a 31-month low.
Sub-sector data highlighted Finance & Insurance and Real Estate & Business Services as the key sources of service sector weakness in September. The latter posted sharp declines in business activity and sales. In the Finance & Insurance segment, growth of business activity stalled due to a contraction in new work. Meanwhile, Consumer Services was the best-performing sector, leading growth of output and new work.
Growth of Indian private sector activity came to a halt in September, ending a one-and-a-half-year sequence of expansion. The Composite* PMI Output Index fell from 52.6 in August to 49.8 in September, reflecting softer manufacturing production growth and an outright reduction in services activity.
Aggregate sales decreased for the first time in 19 months during September. As was the case for output, the fall in new orders was fractional. Services new business declined, while factory orders rose.
Private sector employment continued to rise, but the pace of expansion softened to a three-month low. Marginal increases were evident in the manufacturing and service categories.
Challenging economic conditions hampered business sentiment in September, with optimism down at goods producers and service providers alike. Aggregate confidence fell to a 31-month low.
Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "The bad news of a cooling manufacturing sector was compounded by an outright services downturn in September. As a result, private sector output in India contracted for the first time since February 2018. This reflected a decline in sales, albeit fractional, which restricted employment growth. Worryingly, business sentiment sank to a 31-month low.
"Policymakers will hope that monetary and fiscal stimuli can boost domestic demand as well as business investment, thereby restoring economic growth in the months to come. A drop in aggregate input cost inflation to its lowest in around three years raises the possibility of a further cut in the benchmark interest rate.
"When we look at the sub-sector data for the service sector, we can see diverging performances. Real Estate & Business Services and Finance & Insurance were the main sources of weakness, failing to record growth of new orders and output. The other three segments continued to expand, but at softer rates than in August. Once again, Consumer Services was the best-performing category in September."
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