Services activity in Jun contracts again

Services sector activity, which makes up more than half of India’s gross domestic product (GDP), contracted for the fourth consecutive month in June due to the unfolding coronavirus pandemic, although the pace of contraction slowed.

According to data released by IHS Markit, services Purchasing Manager’s Index (PMI) in June improved to 33.7 from 12.6 in May, but is still well below the 50 mark that separates expansion from contraction.

“Although the downturn lost further momentum in June, it remained excessively strong as the pandemic curtailed intakes of new work and disrupted business operations. The slower rate of decline was reflective of some stabilization in activity levels, with around 59% of firms reporting no change in output since May. Meanwhile, only 4% registered growth, while 37% recorded a h, while 37% recorded a reduction,” IHS Markit said.

The manufacturing Purchasing Manager’s Index released on Wednesday showed a decline at 47.2 in June, improving from 30.8 recorded in May, signalling faster normalization of activity since the nationwide lockdown was lifted on 1 June.

“India’s service sector continued to struggle in June as the country’s coronavirus crisis worsened. Simply put, the country is gripped in an unprecedented economic downturn that is going to spill over into the second half of the year unless the infection rate can be brought under control,” said Joe Hayes, an economist at IHS Markit.

Employment across the services sector fell in June. “Job losses were attributed to lower business requirements, although some firms reported poor staff availability. Consequently, there were signs of capacity pressures building as outstanding contracts rose, despite overall activity continuing to fall sharply,” the data analytics firm added.

As conditions continued to deteriorate, surveyed firms became more pessimistic towards their prospects over the coming 12 months. “Business confidence slid to a survey low and also pointed to strongly negative expectations towards activity levels in the year ahead. The heightened risk of a protracted recession was commonly noted by pessimistic firms,” IHS Markit added.