Service sector falls sharply in July: No real sign of economic recovery; job cuts at record high

In a fifth major contraction in a row, the services PMI stood at 34.2 in July.

Even as India steps out of the nationwide lockdown and gradually starts to reopen businesses, the country’s service sector is still in the dark shadows of coronavirus-led disruptions. In the fifth major contraction in a row, the services PMI stood at 34.2 in July. Despite rising slightly from 33.7 in June, the service sector saw a further rapid reduction in the output, according to the IHS Markit report. The Indian service sector remained severely restricted by lockdown measures implemented to curb COVID-19 in July, the report added. Both activity and inflows of new work were severely hit as lockdown restrictions stifled demand and forced companies to cease operations.

On the back of the slow business, firms made further cuts to staff numbers, taking the rate of job shedding to a record level. “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,” said Lewis Cooper, Economist at IHS Markit. With such a prolonged and significant downturn, any substantial recovery will take many months, if not years, he added.

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Substantial uncertainty, lockdown measures, and expectations of a severe economic recession have spread negative sentiment across the sector. Consequently, the 12-month outlook for the output was negative for a third successive month.

Meanwhile, the Composite PMI Output Index, which measures combined services and manufacturing output, also signalled a further rapid contraction in private sector business activity in July. Falling from 37.8 in June to 37.2, the latest figure showed a quicker rate of contraction. However, services again registered the sharper decline. Given the disruptions in economic activity, IHS Markit has also estimated that the Indian economy will contract by 6 per cent in the current fiscal.