July services activity shrinks for fourth month in a row; PMI at 34.2

Downturn grips sector as job loss, low export orders and poor domestic demand distress companies


Services PMI | Indian Economy | Economic slowdown

India’s services industry contracted for the fourth straight month in July as sales plunged and companies were scuttled by lockdowns to contain the coronavirus pandemic, said a monthly survey on Wednesday.

The IHS Markit Services Business Activity Index (Services PMI) rose to 34.2 in July, up from 33.7 in June. In PMI parlance, a 50-mark threshold separates expansion and contraction. Services PMI had been rising for three months, but the pace has slackened in recent times. PMI registered 12.6 in May and just 5.4 in April.

Intermittent shutdowns and weak demand sank output in July. “Despite rising slightly from June, (the index) signalled a further rapid reduction in service sector output. Moreover, the latest reading was among the lowest recorded in nearly 15 years of data collection, surpassed only by the unprecedented falls in the previous three months.,” the survey pointed out.

New orders fell at the sharpest pace in July, as firms reported key clients quoting low requirement. As domestic demand remain soft, export orders also continued to fall. The latest decline in new export orders was steeper than that for total new business, but the least severe since March, the survey pointed out.

Lay-offs continued across the sector. The rate was the fastest on record, with companies blaming weak client demand and temporary business closures.

The services sector scaled an 85-month high in February, riding on new orders from overseas markets. Growth has stagnated in recent months, with the number of jobs created falling to a three-month low even during February’s boom period.

In July, there were signs of capacity pressures building up again as firms struggled to process backlogs in July. The level of outstanding business rose again, with the rate of expansion the quickest since October 2017.

As the economy slumped in June, companies said they were pessimistic about their prospects for the next 12 months. Business confidence slid to a survey low, pointing at negative expectation about economic activity. Negative sentiment was linked to uncertainty, lockdown measures and the fear of a severe economic recession, said the survey.

ALSO READ: July manufacturing PMI falls to 46; overall activity shrinks for 4th month

Lastly, prices data showed input costs increased for the first time since March amid reports of greater fuel and cargo costs alongside higher fees charged by suppliers. On the other hand, fierce competition for the relatively little new work available continued to put downward pressure on selling prices. Average charges levied by Indian services firms fell for the fourth consecutive month, with the rate of deflation accelerating to a solid pace.

Earlier this week, a similar survey showed that manufacturing activity continued to contract for the fourth-straight month in July as regional lockdown extensions severely held back demand and labour, logistic challenges remained strong. Manufacturing PMI stood at 46 in July, down from 47.2 in June. PMI had fallen to a historic low of 27.4 in April, but had been steadily climbing up since.

The seasonally adjusted IHS Markit Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of the country’s gross domestic product, fell to 37.2 in July, down from 37.8 in June. It had crashed to a record low of 7.2 in April, signalling a serious slowdown in overall private sector output growth.