India's service sector growth hits five-month low in May
India's service sector growth slowed to a five-month low in May, as indicated by the final HSBC India Services purchasing managers' index (PMI) compiled by S&P Global. The PMI dropped to 60.2 from April's 60.8, contradicting an initial forecast of a rise to 61.4. Despite the slowdown, the index remained above the critical 50 mark for the 34th consecutive month, indicating continued growth.
Domestic demand eases, exports surge in May
"India's service activity rose at a slightly softer pace in May, with domestic new orders easing slightly but remaining robust," stated Maitreyi Das, a global economist at HSBC. The new business sub-index showed strong demand but grew at its slowest pace this year due to intense competition and heatwaves. However, exports saw significant growth during this period, expanding at their steepest pace since the inclusion of the sub-index nearly 10 years ago.
Business outlook rises amidst increasing cost pressures
The business outlook for the next 12 months rose to an eight-month high due to strong sales, leading service firms to increase job creation at the fastest rate since August 2022. However, Das noted that "cost pressures ticked up in May led by higher raw material and labor costs." This rise in cost pressures could potentially trigger a resurgence in inflation, possibly influencing the Reserve Bank of India's decisions on interest rates.
Composite PMI output index also hits five-month low
The overall HSBC India composite PMI output index, which measures both manufacturing and services activity, fell to a five-month low of 60.5 in May from April's 61.5. This was below the initial estimate of 61.7. The newly elected government will need to focus on maintaining growth in both services and factory activity to ensure India retains its title as the fastest-growing major economy. Despite the slowdown, India's economy grew at a better-than-expected pace of 7.8% last quarter.
