India’s services growth at one-year high

India’s services growth at one-year high

India’s dominant services activity grew at its fastest pace in a year last month, driven by an extended robust recovery in domestic demand through input costs rose at the quickest rate in eight years, a private survey showed.
Asia’s third-largest economy came out of a technical recession and expanded 0.4% annually last quarter and the recovery is widely expected to gather pace in the year ahead amid hopes a successful vaccine rollout will boost business activity.

The Nikkei/IHS Markit Services Purchasing Managers’ Index rose to 55.3 last month from 52.8 in January, its highest since February 2020, just before the coronavirus pandemic hit the economy.
It has stayed above the 50-level mark separating growth from contraction for the fifth straight month as a sub-index tracking new business orders hit a year high. The positive impulse came despite a persistent contraction in foreign demand, albeit the pace of the downturn was the slowest since March 2020.
The economic rebound and the solid recovery in manufacturing activity helped boost the composite PMI to a four-month high of 57.3 in February.
Still, services firms reduced headcount at the sharpest pace in three months, signalling the bruised labour market will take more time to fully recover.

Firms faced the strongest increase in input costs in eight years but were unable to transfer it on to customers as they tried to maintain their market share and stimulate new orders.
That along with a recent spike in oil prices – a key component of headline inflation – mean overall price pressures are likely to intensify, making it difficult for the Reserve Bank of India to remain so accommodative.
Going forward, the continuation of strong demand, passing off the cost burden to clients and most importantly RBI maintaining its accommodative stance will be key factors to watch.

India’s services growth at one-year high