Home >Markets >Mark To Market >Covid: Pessimism among global services providers is here to stay

MUMBAI: The novel coronavirus crisis has dealt a deeper blow to services providers than their manufacturing peers. Although some economies are gradually opening up, the road to recovery for global services industries would be long drawn. Thus, keeping the spirits of services sector low.

Chief economist at International Monetary Fund Gita Gopinath said, “In the case of China, one of the early exiters from lockdown, the recovery of the services sector lags manufacturing as such services as hospitality and travel struggle to regain demand. Of particular concern is the long-term impact on economies that rely significantly on such services—for example, tourism-dependent economies."

She further added, it is possible that with pent-up consumer demand there will be a quicker rebound, unlike after previous crises. "However, this is not guaranteed in a health crisis as consumers may change spending behavior to minimize social interaction, and uncertainty can lead households to save more," she said in her latest blog post.

Covid Recovery Trackers of London-based independent research firm Capital Economics Ltd showed that the recovery in manufacturing is likely to outperform services. “With lockdowns easing, the prospects in the services sector is also improving, reflected by the rise in the services PMI in the BRIC economies last month. But the recovery in services is likely to lag industry, as the sector will feel a greater drag from prolonged social distancing measures," it said in a report on 19 June.

Little wonder then that services providers aren’t too gung go about near-term business prospects. In May, the JP Morgan Global Services Business Activity Index signalled contraction for the fourth month in a row. The survey showed that although rates of eased sharply from April's conditions in the sector remained difficult with further declines in new business, new export orders, backlogs of work and employment.

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