Wednesday, 4 September 2013

HSBC services PMI stays below 50 in August

Business activity (47.6 vs. 47.9 in July) stayed below the 50 mark in August led by a further decline in new business flows

Services sector activity remained below the 50 mark in August as macroeconomic uncertainty and tighter financing conditions continued to dent new business flows and business confidence, HSBC Global Research said in its report today.

Inflation picked up largely due to the depreciation of the rupee leading to higher imported inflation. Looking ahead, the weak spell is set to continue as the RBI will need to keep currency stabilisation measures in place and macroeconomic uncertainty persists.

Business activity (47.6 vs. 47.9 in July) stayed below the 50 mark in August led by a further decline in new business flows (46.6 vs. 47.6 in July) and fall in business expectations (63.7 vs. 67.5 in July).

The composite index for services and manufacturing (48.2 vs. 49.6 in July) fell further. Outstanding business (48.9 vs. 50.7 in July) declined in line with the weaker order flows, and employment (50.1 vs. 51.7 in July) was broadly flat.
Both input prices (55.3 vs. 52.5 in July) and prices charged (51.1 vs. 50.7 in July) picked up. The economy's largest sector, services, is losing traction, having seen activity contract for two straight months. Growth is being weighed down by the tighter financial conditions on the back of RBI's currency stabilization measures and capital outflows. Moreover, heightened macroeconomic uncertainty is dampening consumer and business sentiments.

These factors are expected to weigh on growth in coming month. Feeble signs of recovery may materialise during the final quarter of the fiscal year as macroeconomic uncertainty gradually recedes and confidence reluctantly recovers. By that time, we may also have some traction on stalled investment projects.

However, the outlook is tainted with downside risks, which could materialize if politics get in the way of meaningful macroeconomic and structural policy responses.

Services sector contracted for the second month in a row led by depleting orders and weakening sentiments. The weak run is set to continue with macroeconomic uncertainty and tighter financial conditions weighing on growth.

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