India’s service sector PMI hits four-month high at 59.3 in December

Service sector recorded an impressive performance in December, S&P Global said on Monday highlighting a survey result. Service sector has a share of over 53 per cent in Gross Value Added (GVA).

The survey’s result is known as the Purchasing Managers’ Index (PMI), which rose to 59.3 in December as against 58.4 in November. Growth in the services sector is contracting to manufacturing, where PMI slipped to a 12-month low of 54.1 in December.

“India’s services companies expressed strong optimism in December as business activity growth surged to a four-month high,” said Ines Lam, Economist at HSBC. The PMI is based on a survey among purchasing managers of 400 companies. An index above 50 shows expansion, while below 50 refers to contraction.

According to the survey report, demand buoyancy continued to drive higher new business inflows, which in turn supported output growth and prompted firms to recruit additional workers. “The combination of new business growth, upbeat forecasts and rising capacity pressures supported another round of job creation across the service economy. The rate of employment growth softened from November, but was sharp and among the strongest seen since data collection began in December 2005,” the report said.

Although services companies continued to see their business expenses rising in December, the rate of inflation softened from November’s 15-month high. Anecdotal evidence suggested that firms paid more for food, labour and material. Reflecting a further increase in input costs, service providers raised their own fees again in December. The rate of charge inflation remained above its long-run trend, despite slowing from November. Out of the four sectors covered by the survey, cost pressures were by far strongest at Consumer Services firms. Charge inflation was highest in the Transport, Information and Communication category,” the report said.

“Forward-looking indicators such as new business and future activity suggested that the strong performance will likely continue in the near future. The easing of input price inflation in the month also supported business sentiment,” Lam said.

Service providers remained confident that output would increase over the coming 12 months. Although the overall level of positive sentiment fell from November’s six-month high, it remained above its long-run average. Expanded capacities, new customer enquiries, and budget allocation towards marketing were some of the tailwinds cited by firms, the report mentioned.

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