Services PMI rises to 7-year High at 55.5 in January

The IHS Markit India Services Business Activity Index stood at 55.5 in January 2020, up from 53.3 in December 2019, denoting a strong start for service sector. This also signalled the strongest upturn in output for seven years.

The fastest growth in new orders and output in seven years was boosted by the increase in demand. Thus, as a result, job creation was sustained and business optimism maintained, as per the latest IHS Markit Services PMI report.

The Composite PMI Output Index increased from 53.7 in December to a seven-year high of 56.3 in January. January data showed that growth of private sector activity moved up a gear, along with the broad-based accelerations across manufacturing and services.

A sudden wave of new businesses was the main factor that accelerated the growth. According to IHS Markit, aggregate sales increased at the sharpest pace since January 2013, with quicker increases evident at goods producers and service providers.

Reuters added, “The Indian service sector sprung to life at the start of 2020, defying expectations of fragility and building on to the momentum gained at the end of 2019,” Ms Pollyanna De Lima, principal economist at IHS Markit, said, “With business revenues rising, service providers continued to increase capacity to meet further strong growth in sales. This is good news for jobseekers, particularly when we consider the results from the manufacturing industry which showed the steepest upturn in employment since August 2012.”

The encouragement to the firms to maintain a strong hiring rate was also provided by a sub-index that keeps a track of new business. This sub-index also reached to its highest since January 2013.

Though, the new export business, an indicator of foreign demand, declined last month, falling to its lowest since May 2018 on weaker demand from China, the United States and Europe. This pressure could increase further amid growing global risks from China’s coronavirus epidemic which has rapidly spread to other countries and claimed nearly 500 lives, nearly all in mainland China.

Furthermore, prices charged by service firms increased at the fastest pace in nearly two years after a sharper rise in input costs forced businesses to transfer some of the inflationary pressure to consumers. This suggests overall inflation could remain above the Reserve Bank of India’s medium-term target of 4 per cent, making it difficult for the central bank to ease monetary policy further.

“One worrying development, however, was the trend for inflation. This may translate into quicker increases in selling prices in months to come, which may curb sales,” Ms De Lima said. “Firms could also choose to restrict hiring in order to protect profit margins.”

Though, the index remained well below the expected long-term average, service providers are optimistic about growth in the year ahead.
Another survey on Monday showed factory activity accelerated at the fastest pace in eight years last month which, along with the strong expansion in services activity, pushed a composite index to 56.3, its highest since January 2013.

Source : IBEF

Image Courtesy: Fortune India