BackCovid pandemic keeps services sector in India constrained in July
IHS Markit showed purchasing managers' index (PMI) for services inched up only slightly to 34.2 in July from 33.7 in JuneLockdown measures continued to weigh heavily on the Indian service sector in July and IHS Markit estimates annual contraction in GDP of over 6% in FY21
PremiumThe rate of contraction of India’s service economy improved only marginally in July compared with its June level. It is a signal that the service sector remains severely constrained as the spread of the coronavirus pandemic continues to restrict mobility of consumers as well as workers.
Data released by the data analytics firm IHS Markit showed purchasing managers' index (PMI) for services inched up slightly to 34.2 in July from 33.7 in June. A figure of above 50 indicates expansion, while a sub-50 print signals contraction.
Manufacturing PMI had declined slightly in July to 46 from 47.2 in June—data released on Monday showed—signaling local lockdowns imposed across the country by state governments amid demand slump is impacting business activities at the national level.
“Further substantial reductions in both activity and inflows of new work were recorded, as ongoing lockdown restrictions stifled demand and forced companies to cease operations. Subsequently, firms made further cuts to staff numbers, with the rate of job shedding the most marked on record. Looking ahead, the 12-month outlook for output was negative for a third successive month, with fears of a substantial economic downturn common among survey respondents," the analytics company said in a statement.
Lewis Cooper, economist at IHS Markit, said the coronavirus pandemic and subsequent introduction of lockdown measures continued to weigh heavily on the Indian service sector in July and IHS Markit estimates annual contraction in GDP of over 6% in FY21. “July data, as a whole, provide no real sign that the downturn is slowing. That's not surprising with lockdown measures still in force, but undoubtedly these will have to be loosened and companies have to reopen before the sector can move towards stabilization. With such a prolonged and significant downturn, any substantial recovery will take many months, if not years," he added.
The finance ministry on Tuesday said India's economic recovery will depend on how the pandemic behaves across the country in the coming days, especially in industrialised states. India’s top 12 growth driving states account for 85% of the covid-19 case load, with 40% of confirmed cases concentrated in the top two growth drivers i.e. Maharashtra and Tamil Nadu.
The International Monetary Fund (IMF) last week said high-frequency indicators signal plateauing of economic activity in India as the positive impact from unlock is not as strong as the negative impact of the lockdown. It urged the government to urgently contain the spread of the coronavirus pandemic on a priority to make economic recovery sustainable.
Key to the ongoing downturn in July was a further drop in sales. Total new business declined for a fifth successive month, with little change in the rate of contraction from June. Survey respondents linked falls in both activity and order books to the adverse impact stemming from the covid-19 pandemic, with frequent mentions of lockdown measures, weak demand conditions and the temporary suspension of company operations.
With overall demand conditions severely muted, service providers made further job cuts in July. The rate of job shedding was the fastest on record, with panelists blaming weak client demand and temporary business closures. With capacity being restricted further, firms struggled to process backlogs in July. The level of outstanding business rose again, with the rate of expansion the quickest since October 2017.
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