July 2020: Services Activity Shrinks for 5th Month

India’s services sector activity shrank for the fifth consecutive month in July even though the pace of contraction slowed compared to June, a clear indication of the Covid-19 pandemic and lockdowns taking a toll on the services sector. July witnessed drops in new business and job cuts. The IHS Markit Services Business Activity Index was 34.2 in July against 33.7 in June. A reading above 50 indicates expansion and below that shows contraction in activity.

The latest reading remains close to the lowest recorded in nearly 15 years of data collection, surpassed only by the unprecedented falls in the previous three months.

With overall demand severely muted, service providers made further job cuts in July. The rate of job cuts was the fastest on record, with panellists blaming weak client demand and temporary business closures.

“Services firms remained pessimistic with regards to activity over the year ahead for a third consecutive month in July, with the proportion of survey respondents expecting a decline in activity levels outweighing those anticipating a rise,” IHS Markit said.

A sister survey showed manufacturing worsening in July. The Composite PMI Output Index signalled a further rapid contraction in private sector business activity in July as it fell from 37.8 in June to 37.2.

The latest IHS Markit estimates point to an annual contraction in GDP of over 6% in the year ending March 2021.

No comments: