Service sector companies reported an uptick in business and consumer spending in the November PMI survey, although some firms noted that stretched budgets and uncertainty as a effect of Brexit had acted as a brake on growth. This was matched by a reduction in new work. "It is possible that a predominance of the unorganised sector in services, where business models have been shaken by the implementation of the GST, is facing greater challenges", Japanese brokerage house Nomura said in its note. Prices charged by services companies picked up for a fifth month running in November to be at the highest level since February 2008.
However, this was still above the 50 threshold for growth, which the sector has achieved for 16 consecutive months.
IHS Markit's final composite Purchasing Managers' Index for the euro zone, seen as a good guide to growth, was confirmed at an earlier flash reading of 57.5, up from October's 56. This signalled a broad stagnation in private sector output in India. The survey showed the new business sub-index, a proxy for both foreign and domestic demand, slumped to 48.3 last month from October's 51.5.
On the other side, manufacturing orders grew at the fastest rate since October 2016.
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However, factory activity expanded in November at the fastest pace post demonetisation, the news agency stated. That said, the rate of accumulation was modest and the weakest since June. "Meanwhile, cost pressures intensified during the latest survey period", the report said. Moreover, higher taxation led to an increase in overall input prices. Among the items mentioned as being up in price were chemicals, steel and petroleum products.
As a result, firms raised their average selling prices at the quickest pace since July. The services sector is more labor-intensive than manufacturing, and policymakers are counting on it to create more jobs. Subsequently, output charge inflation was marginal.
The snapshot of the largest sector in the economy will worry consumers already caught by weak wage growth and rising inflation. However, business confidence remained low in the context of historical data. "Business underperformance emanated from July's Goods and Services Tax which contributed to sluggish demand and lower customer turnout", Reuters quoted Aashna Dodhia, an economist at IHS Markit.
Dodhia also said building cost pressures could constrain output growth in the near-term and reduce any central bank appetite to cut interest rates.