Dark clouds over services sector: Near-term expectation falls to record low; May PMI remains under stress

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Published: June 3, 2020 10:57 AM

The services PMI stood at 12.6 in May, indicating an extreme drop in services activity across India.

services PMI, service sector, hospital, tourism, service sectorThe recovery to pre-pandemic levels of GDP is going to be very slow as the economic output is set to fall enormously in the first half of 2020.

India’s services PMI slightly recovered in May from an all-time low in April but remained much below the street estimates. The services PMI stood at 12.6 in May, indicating an extreme drop in services activity across India. Business activity across India’s service sector fell drastically during May from a year ago. Unfavourable economic effects of the coronavirus pandemic impaired business operations, restricted consumer footfall, and led demand to collapse, according to IHS Markit. The employment also continued to fall on the back of weak demand and expectations of further challenging conditions. The measures imposed to arrest the spread of coronavirus are being held responsible for the latest drop in sales. The report has suggested that output expectations for the coming 12 months slumped to a record low.

Service sector activity in India is still effectively on hold as output fell at an extreme rate once again during May, said Joe Hayes, Economist at IHS Markit. Demand for services, both domestically and overseas, continued to plummet in May as clients’ businesses remained closed and footfall remains drastically below normal levels, Joe Hayes added. It is also estimated that the recovery to pre-pandemic levels of GDP is going to be very slow as the economic output is set to fall enormously in the first half of 2020.

Also Read: Job loss at all-time high; manufacturing PMI second-lowest in May even as economic activity resumes

The services PMI had nosedived to 5.4 in April from 49.3 in the previous month, which was far below market expectations of 40. April saw the steepest contraction in services PMI on record. As the measures to contain the adverse effect of coronavirus increased, the uncertainty in the market led both input costs and output charges to fall the most on record.

Meanwhile, the manufacturing activity and business optimism in the manufacturing sector in May stood at the second-weakest level on record in May even after the government allowed most of the businesses and industries to resume operations. The manufacturing PMI marginally increased from 27.4 in April to 30.8 in May as weaker demand in the market led to a slow output after April’s complete lockdown. The job cut in the manufacturing sector was at the quickest pace since data collection began over 15 years ago.

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