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India Services PMI Is in Contraction Zone: What That Indicates

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India Services PMI

According to Markit Economics, the India Services PMI (Purchasing Managers’ Index) was 48.7 in January 2017 compared to 46.8 in December 2016. It met the market expectation.

January was the third consecutive month of contraction. But it recovered from its lowest level in December 2016, when it also contracted.

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India’s demonetization

The January PMI number compared to December 2016 indicates an improvement in India’s (INDA) business activity after the government’s demonetization. New orders and production volume growth fell slightly in January 2017. New orders and production volume growth showed weaker performance.

Most developed nations (EFA) such as the United States (QQQ) (SPY) and Europe (VGK) (IEV) showed contractions in manufacturing and services PMIs in the last year. But India’s PMI figures haven’t been in the contraction zone for the past year.

The current government demonetization has created a significant shortage of money. Narendra Modi, India’s prime minister, said on November 8, 2016, that the two highest currency notes—the 500-rupee note and the 1,000-rupee note—can’t be used for business transactions.

Contractions for the India Manufacturing PMI and the India Services PMI in December 2016 were mainly because of falling domestic demand, which was due to a shortage of money. As the money supply improves and the government focuses on an online payment system, consumer demand should also slowly improve.

In the next part of this series, we’ll look at the performance of the Eurozone Sentix Investor Confidence Index for December 2016.

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