Services activity contraction weakens in July but downturn not slowing: IHS Markit

NEW DELHI: India’s services sector activity shrank for the fifth consecutive month in July even as the pace of contraction slowed last month which witnessed drops in new business and job cuts, a private survey showed on Wednesday. Further

The IHS Markit Services Business Activity Index was 34.2 in July as against 33.7 in June. A reading above 50 indicates expansion and below that, shows contraction in business activity. As per the release, 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.

“The coronavirus pandemic and subsequentintroductionof"lockdown" measures continued to weigh heavily on the Indian service sector in July,” said Lewis Cooper, Economist at IHS Markit, adding that panellists frequently reported temporary company closures and weak demand as a result of the pandemic.


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 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 in the survey report. Negative sentiment was linked to substantial uncertainty, lockdown measures and expectations of a severe economic recession.

Recovery far away
A sister survey on Monday showed manufacturing worsening in July. The Composite PMI Output Index, which measures combined services and manufacturing output, signalled a further rapid contraction in private sector business activity in July as it fell from 37.8 in June to 37.2.

“July data, as a whole, provide no real signs that the downturn is slowing down. That's not surprising with lockdown measures still in force, but undoubtedly these will have to be loosened and companies reopen before the sector can move towards stabilisation,” Cooper said.

He added: “With such a prolonged and significant downturn, any substantial recovery will take many months, if not years”.

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