India’s Services Sector Growth Hits 17-Month Low Amid Weak Demand
India's services sector experienced a significant slowdown in June, marking its weakest expansion in 17 months as domestic demand faltered. While the sector remains in expansionary territory, a sharp decline in new orders and a near-standstill in hiring have raised concerns among industry observers.
Sharp Decline in Business Activity and New Orders
According to the latest HSBC India Services PMI survey, the seasonally adjusted Business Activity Index fell to 57.4 in June, down from 59.8 in May. Although the index remains above the 50-mark—indicating that the sector is still growing—the pace of that growth has moderated significantly.
The primary driver behind this slowdown was the slump in new orders, which saw its weakest increase in more than two and a half years. Many firms reported challenging market conditions and a noticeable reduction in client interest, which directly impacted sales and overall output throughout the month.
Stagnant Hiring and Weakening Business Confidence
One of the most concerning indicators in the June report is the deceleration in employment. After seeing robust recruitment during April and May, hiring activity nearly stalled in June, with only approximately 1 per cent of surveyed firms reporting additional recruitment.
Business confidence also hit a five-month low. Companies cited several macroeconomic headwinds, including intensifying competition, difficult domestic economic conditions, and growing concerns regarding the depreciation of the Indian Rupee. This cautious sentiment is reflected in the broader HSBC India Composite PMI, which slipped to 57.1 in June from 59.3 in May, signaling a wider slowdown across the private sector.
Export Demand Provides a Critical Buffer
Despite the cooling domestic market, international trade provided a vital lifeline for the services sector. Overseas demand remained a bright spot, with export orders reaching their strongest growth level in three months.
The surge in external orders was driven by improved demand from a diverse range of global markets, including the US, UAE, Singapore, Australia, Canada, Germany, and Malaysia, among others. This robust external demand helped cushion the sector against the softening domestic appetite.
Easing Inflationary Pressures
On a positive note, price pressures within the sector showed signs of cooling. Input cost inflation dropped to its weakest level since November, while output price inflation also moderated. Analysts suggest that this easing of inflation is partially due to the subsiding of geopolitical disruptions in the Middle East, which has helped stabilize supply chain costs.
Key Takeaways
- Growth Moderation: The services PMI fell to 57.4 in June, marking a 17-month low due to the weakest rise in new orders in over two years.
- Employment Slowdown: Hiring activity has nearly stalled, with only 1% of firms reporting new recruitment following a stronger start to the quarter.
- Export Resilience: While domestic demand weakened, overseas sales reached a three-month high, driven by strong demand from the US, UAE, and several European and Asian markets.