As we reach the end of 2024, the Indian economy demonstrates a significant rebound, particularly in the services sectorThe Purchasing Managers' Index (PMI) for services has remained in a positive growth zone for three consecutive years, showcasing robust domestic demandOn January 6th, S&P Global released the December figures for the HSBC India Services PMI, revealing strong hiring trends and a notable uptick in service sector activity that reached a nearly four-month highThe PMI value rose from 58.4 in November to 59.3 in December, though slightly below the initial estimates of 60.8, it represents the highest level since August.

At the core of this sustained growth is a resilient service sector that has been expanding for over three yearsOne can only speculate on the trajectory that may have unfolded had the COVID-19 pandemic not interrupted this trend back in 2020. However, the current statistics highlight a confluence of factors contributing to this momentum

The Indian workforce remains optimistic about future business prospects, largely supported by robust global demand, which is impacting sentiment positivelyAs highlighted by Ines Lam, an economist at HSBC, indicators such as new business and future activity suggest that the strong performance is likely to persist in the near future.

The significant boost in business confidence has consequently led to increased hiring within the services industry, which is experiencing its fastest rate of employment increase since the survey began in 2005, despite a slight slowdown from November's 19-year highAs inflationary pressures ease, the decline in input and output prices also supports this surge in employment and sentiment, which is pivotal for sustained economic expansion.

On the other hand, while the services sector thrives, the manufacturing sector reflects a different narrativeThe Manufacturing PMI slightly dipped to 56.4 from November’s 56.5, marking a recent low point for the past twelve months

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The fall can be attributed to a moderation in the pace of factory orders and production expansionDecember's figures revealed that the sector saw the slowest growth in new orders this year, indicating potential challenges in sustainable production growth moving forward.

However, there is an encouraging silver liningEven as the Manufacturing PMI experiences a minor downturn, new export orders hit their fastest growth rate in seven months, suggesting that international demand remains robustThis aspect hints at a bright spot for the manufacturing landscape, where cost pressures have shown slight relief, thereby easing some of the burdens on Indian manufacturersThe overall output growth rate continues to support purchasing levels and further expansion in employmentRemarkably, job creation within the manufacturing sector surged for the tenth consecutive month, with companies expanding their workforce as part of a broader optimistic outlook.

A notable trend in December was the significant reduction in post-production inventories, reflecting the strong sales that drained stock levels the most in seven months

Yet, the dual trends of slowed growth in both output and new orders suggest that companies may face heightened competition and pricing pressures moving forwardAlthough the pace of growth remained substantial, December witnessed a slowdown, placing it among the slowest expansion periods of 2024.

Despite these challenges, positive consumer sentiment and robust advertising efforts in the manufacturing sector served as significant catalysts, reinforcing salesMoreover, the demand from exports provided a crucial buffer against the flags raised by domestic order sluggishnessThe modest inflationary conditions seen in input costs this month suggest that manufacturers can navigate these challenges while ensuring profitability, as they exercise their capacity to hike sales prices in line with market demand.

As we contextualize the broader economic landscape, the shift in India’s overall economic health post-third-quarter lows is stark

The third quarter saw a subdued GDP growth of 5.4%, a significant decline from the 7.2% in the first half of the year, driven by lagging urban consumptionHowever, December's strong PMI for services contrasts sharply with hints of deceleration within the manufacturing sphereThis duality of performance by the service and manufacturing sectors has led to a slight but firm recovery in the composite PMI, rising from 58.6 in November to 59.2 in December.

Looking forward, S&P Global’s PMI report indicates that Indian manufacturers remain hopeful about production increases as they navigate through 2025. The optimism reflected in the survey relates to advertising efforts, anticipated investments, and favorable demand conditions, although there exist underlying concerns about inflation and competitive pressures that could temper market sentiments in the long run.

This intricate interplay of growth dynamics illustrates a resilient Indian economy at the close of 2024. The promising figures in the services sector coupled with moderate attributions from manufacturing encapsulate a narrative of recovery and adaptability