Services activity contracts for fourth month in a row in June; firms fear recession in 12 months

As the businesses struggle to operate, in many cases, traders shut down businesses due to unfavourable environment.

For the fourth straight month in June, India’s services PMI contracted due to the effects of the coronavirus pandemic. The services business activity shrank by 33.7 in June, however, it was significantly higher than the services PMI of 12.6 in May, according to the IHS Markit report. The Indian service sector remained under intense strain during June as activity fell at another substantial month-on-month rate amid the ongoing economic disruption, the report added. Though stabilisation in output levels at some firms was visible, the Purchasing Managers’ Index was substantially weak compared to the pre-corona levels.

In the survey, 59 per cent of firms reporting no change in output since May while only 4 per cent of firms registered growth and 37 per cent of firms recorded a reduction. The survey respondents pointed to further weakness in demand conditions where the total new orders fell at a sharp pace during June. The firms held reduced consumption habits and lower requirements at key clients responsible for the low business activity.

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As the businesses struggle to operate, in many cases, traders shut down businesses due to unfavourable environment. The traders have also become pessimistic towards the business prospects over the coming 12 months, owing to the risk of recession. The country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control, said Joe Hayes, Economist, IHS Markit. A large number of firms are still reporting falling activity and order book volumes, reflecting an intensely challenging domestic picture in India, Joe hayes added.

Meanwhile, as the manufacturing production fell moderately, edging closer to stabilisation, the services activity continued to decrease substantially. Consequently, there was a broad-based decline in employment in both the services and manufacturing sectors. Also, for the straight third month in June, the service providers reported a fall in their input costs.