Services Activity Contracts for 3rd Straight Month

India’s services activity contracted — though at a slower pace — for the third consecutive month in July, due to subdued demand conditions amid the coronavirus pandemic and local restrictions.

“July data was somewhat disappointing, with incoming new business and output falling solidly over the month, but there was at least a slowdown in rates of contraction,” said Pollyanna De Lima, associate director at IHS Markit which conducted the survey. The India Services Business Activity Index was 45.4 in July, compared with 41.2 in June.A reading above 50 indicates expansion and lower than that shows contraction.

Data released on Monday showed manufacturing PMI posting strongest growth in three months in July. Because of this, the Composite PMI Output Index rose to 49.2 in July, from 43.1 in June. “However, we continue to believe July marks the beginning of improvement in services. We expect activity to gain more momentum in the coming months,” said Rahul Bajoria, chief India economist, Barclays.

Uncertainty about when the pandemic will end as well as concerns over inflationary pressures and financial troubles damped business confidence in July and service providers remained pessimistic towards the outlook for business activity. De Lima said the Covid-19 environment continued to weigh on the performance of the crucial services sector.

New work intakes in services also fell for the third month running in July, though at a softer pace than in June. In addition to challenging conditions domestically, firms observed a deterioration in international demand for services. New business from abroad decreased at a sharp pace and was little changed from June.

Consumer services was the worst affected segment with sharp declines in new orders and output, while transport & storage was the only subsector to register growth of business activity and sales.

Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year due to concerns over the pandemic, margins and inflation. “The subdued performance of services more than offset a rebound across manufacturing, causing further contractions in private sector sales, output and employment,” De Lima said.

Private sector employment decreased for the seventeenth month in a row in July. There was a marginal uptick in headcount across the manufacturing industry, but services jobs continued to fall, as per the survey.

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