Services PMI shrinks for 3rd straight month in Jul

NEW DELHI: India’s services sector activity remained in red for the third consecutive month in July as demand was hit harder in the contact-intensive sectors than manufacturing, a private survey said on Wednesday.

According to data released by IHS Markit, purchasing managers’ index (PMI) for services was at 45.4 in July compared to 41.2 in June. A reading below 50 indicates contraction in economic activity.

“Business activity, new orders and employment declined further, but in all cases rates of contraction moderated from June. Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year. The latest data also pointed to an intensification of inflationary pressures across the sector,” IHS Markit said.

However, in July, manufacturing PMI posted highest growth in the last three months, after contracting for the first time in 11 months in June, as states eased lockdown restrictions. Even after the first wave of the pandemic the services sector had taken more time to recover.

According to the data analytics firm, new project proposals in the services sector also fell for the third month in a row in July, though at a softer pace than in June.

In addition to domestic challenges, firms witnessed a further deterioration in international demand for services. New business from abroad decreased at a sharp pace, and the conditions had not changed from June.

Consumer services was the worst-affected, registering a fall in new orders. Contractions in output were recorded across all four categories. Transport and storage was the only sub-sector to see growth in business and sales. In line with the sustained decline in new work, there was a further reduction in services sector employment, which contracted for the eighth month in a row, though at a moderate pace compared to June.

“Another factor weighing on jobs was an overall view that business activity will decline over the course of the coming 12 months. Companies were pessimistic for the first time in a year. The downbeat assessment for output stemmed from concerns over the pandemic, margins and inflation,” IHS Markit added.

According to Pollyanna De Lima, associate director, IHS Markit, the current Covid-19 environment continued to weigh on the performance of the service sector, which is very crucial to the Indian economy.