India’s dominant services industry grew faster than expected in August thanks to a solid expansion in demand and a continued easing in cost pressures, encouraging firms to hire at the quickest pace in more than 14 years, a private survey showed. Driven by strong growth in services and manufacturing activity, Asia’s third-largest economy expanded at its fastest annual pace in a year during the April-to-June quarter.
However, that momentum is unlikely to be sustained over the coming quarters as higher interest rates, elevated price pressures, and growing concerns about a global recession pose significant risks to the economy.
Still, the S&P Global India Services Purchasing Managers’ Index rose to 57.2 in August from 55.5 in July, surpassing the 55.0 estimate in a Reuters poll. It remained above the 50-mark separating growth from contraction for a 13th straight month.
“The pick-up in growth stemmed from a rebound in new business gains as firms continued to benefit from the lifting of COVID-19 restrictions and ongoing marketing efforts,” noted Pollyanna De Lima, economics associate director at S&P Global.
“Finance and insurance was the brightest area of the service economy in August, leading with regards to growth of sales and output.”
While that encouraged firms to raise headcount at the fastest pace since June 2008, signs of demand remaining resilient boosted business confidence to its highest in over four years. But overseas orders contracted for a 30th consecutive month on persistent weakness in global demand.
Input prices, albeit elevated, increased at their slowest pace in nearly a year in August. Persistent strength in demand allowed firms to transfer some of their high-cost pressures onto their customers.
Although overall inflation is widely expected to slow over the coming months, it is unlikely to decline to within the Reserve Bank of India’s medium-term target range of 2 per cent-6 per cent anytime soon.
That means the RBI, which has already raised its key repo rate by 140 basis points since May, is expected to continue with its rate hikes. Faster expansion in services activity and strong manufacturing growth boosted the composite index to 58.2 in August from 56.6 in July.
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