China, India service sectors counter downturn

The Indian survey showed service sector order books grew at the same clip as in June, prompting businesses to increase their workforces at a similar pace to that of the previous month.

The Indian services PMI did show that firms' confidence is falling, albeit from high levels, as the world economy stutters and the country's government struggles to push ahead long-pending reforms, such as allowing foreign direct investment in the supermarket and airline sectors.

In China, the official services PMI showed that water-borne transport, hotels and postal services all contracted, while Internet software, air transport and residential services remained in growth territory.

"The index indicates the stable economy expansion in the non-manufacturing sector has not been changed," said Cai Jin, a vice president at the China Federation of Logistics and Purchasing (CFLP), which conducts the official survey on behalf of China's National Bureau of Statistics.

Notably, the construction services sub-index rose by 2.3 points to 60.4 in the official PMI, indicating strong growth and reflecting a loosening of the tight restrictions on China's property developers that reined in economic growth in the first half of 2012.

Expansion

China's top leaders, President Hu Jintao and Premier Wen Jiabao, promised this week to step up policy "fine tuning" in the second half of the year to support the economy.

Beijing has cut interest rates twice and banks' reserve requirements three times since November. Investors expect to see more, though few expect a full-blown stimulus package similar to the one launched during the global financial crisis of 2008/2009.

"The weaker the data now, the bigger the chance for stronger policy response, which eventually should be good for sentiment and for recovery of GDP growth later in H2," Kowalcyzk said.

China's economic growth has eased for six consecutive quarters, due to a domestic credit crunch and the chill of the euro zone debt crisis. However, a Reuters poll in July showed most economists estimate the slowdown bottomed out in the second quarter.

India's ability to boost an economy that grew in the March quarter at a nine-year low of 5.3% is much more limited than China's.

The central bank skipped a rate cut at a review this week, worried that relaxing credit conditions would aggravate inflation, already at high levels.

However, the Indian government is running a heavy fiscal deficit and maintains high subsidies, constraining its ability to provide fresh stimulus.

On top of that, the ruling Congress party has so far failed to garner political support for significant reforms that could drive the economy forward.

Highlighting the country's weak infrastructure, long criticised as crimping economic growth, India suffered two of the worst power blackouts in its history this week. More than half of its 1.2 billion people were without electricity for days.