While a lot is being said about the manufacturing sector bouncing off a bottom, for most developed countries as well as for India, it’s the services sector that makes up the largest part of the economy. The spring KPMG Business Outlook survey for the Bric (Brazil, Russia, India and China) economies, which surveys services firms, shows a marked improvement in outlook, with the net balance of firms forecasting higher activity over the next 12 months, rising from 33.8% to 43.5% . (The net balance is the percentage of firms seeing a better outlook, minus the percentage of firms that see weakness ahead).
For India, a net 31.3% firms see their activity levels improving, up from 15.3% in the last autumn survey. Around 37% of Indian services companies forecast new order growth in one year’s time, compared with 16% that anticipate a fall. Even capital expenditure at Indian services firms is anticipated to rise in the year ahead, with 43% of panellists saying they plan to increase spending on fixed assets, compared with 7% that plan to reduce it. The resulting net balance of 35.7% is up substantially from last October’s 20.3%. Revenues are expected to grow by a net 31.1% of firms, while a net 32.5% believe their profits will increase.
Also See Easing Pressure (Graphic)
A similar KPMG survey for Europe also saw conditions among services firms improving. That fits in with the JPMorgan Global Services PMI (purchasing managers’ index) for April, which, at 43.8, rose to its highest level since last September. Since any reading below 50 signals contraction, the survey results imply that the global services economy continued to contract in April, but the rate of contraction was lower. As David Hensley, director of Global Economics Coordination at JPMorgan, said: “April PMI data indicate that the downturn in the global services sector eased further, with the declines in business activity and new orders continuing to ease. We are still a distance from outright recovery, but the sector continues to move in the right direction.”
There are no published numbers for the services PMI in India, but the global improvement in the sector, taken together with the KPMG survey, points to an improved outlook for the services sector, although the pace of expansion is expected to be limited by weak global cues. There is one concern, though. The KPMG survey shows that more firms expect input costs to rise than output costs. That could indicate margin pressures in future and a return of inflation.
Graphic by Ahmed Raza Khan / Mint
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