India's services sector expanded at its fastest pace in three months in September, driven by strong domestic demand. However, the overall quarterly growth for July-September was the weakest since the first quarter of 2022, indicating a mixed economic picture.
The divergence between monthly services growth and the weaker quarterly performance highlights potential challenges for India's economy. While domestic demand provides a buffer, the slowdown in export orders and easing employment growth could temper overall economic recovery.
India's services industry experienced its fastest expansion in three months in September, primarily fueled by increased demand for financial, consumer, and digital services. The HSBC India Services Purchasing Managers' Index (PMI) climbed to 55.2 from 54.1 in August, surpassing the preliminary estimate of 55.8. This acceleration was largely driven by domestic customers, as export order growth slowed to its weakest pace in nearly three years.
Despite the monthly improvement, the overall economic picture for the July-September quarter remained subdued, marking the weakest quarterly growth since the period ending March 2022. Hiring softened, with employment growth easing from August levels. Input cost inflation decreased to its lowest point in 10 months, while price increases for customers slowed to their weakest pace since June. Business confidence saw a three-month high but remained historically low, with only about 16% of firms anticipating increased activity in the coming year.
The manufacturing sector also showed accelerated growth, reaching its fastest pace since February. This contributed to the India Composite PMI rising to a three-month high of 55.9 in September, up from 54.3 in August. However, the composite quarterly average also reflected the weakest performance since January-March 2022.
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