India's Private Sector on a Growth Path: Fastest Increase in Four Months

India's private sector recorded the fastest increase in economic activity in four months in December, according to a survey. This momentum, driven by stronger demand in both the services and manufacturing sectors and a record growth in jobs, allows Asia's third-largest economy to close the year 2024 on a positive note. Despite moderate growth of 5.4% in the last quarter, easing inflation is likely to boost demand in private companies and improve prospects for the coming year. The HSBC December flash of the India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 60.7 this month, reaching the level of August after falling to 58.6 in November. A PMI above the 50 mark signals growth, and notably, the business activity index was above 60 in all but three months this year. This is reminiscent of strength before the global financial crisis of 2008 and indicates a strong expansion of the private sector. Ines Lam, an economist at HSBC, commented that the slight increase in the manufacturing PMI in December was mainly driven by increases in production, new orders, and employment. Increased new domestic orders suggested a rise in economic growth. The strongest increase in demand was seen in the dominant services sector, whose PMI rose to a four-month high of 60.8, up from 58.4 in November. The index for the manufacturing sector also climbed from 56.5 in the previous month to 57.4. Service providers reported the highest increase in new business since January, partly due to improved international demand for goods and services. These developments bolstered business prospects for 2025 and raised optimism to the highest level since September of the previous year. Companies intensified hiring of new employees more than at any time since the survey began in 2005. Both the manufacturing and services sectors reached new highs in employment. Inflationary pressures eased in December after two consecutive months of stronger increases. However, companies again raised sales prices, although more slowly than in November, when they nearly reached a 12-year high. This should provide some relief to the newly appointed Governor of the Reserve Bank of India, Sanjay Malhotra, especially as consumer price inflation was lower than expected last month at 5.48%. According to a Reuters poll, economists expect a rate cut in February 2025.