BusinessIndia

Service sector registers sharpest decline in 11 months

New Delhi: Owing to COVID-19 induced restrictions on movements and economic activities, demand for services dropped sharply in June leading to quickest fall in service sector activities, reported IHS Markit in its monthly data released on Monday.

The seasonally adjusted India Services Business Activity Index was registered at 41.2, falling from 46.4 in May.
This is second consecutive month of de-growth in service sector. Index value below 50 points to contraction whereas index above 50 indicates growth, with 50 being no-change mark.

“Subdued demand conditions resulted in a second successive monthly drop in new business received by services firms. The pace of contraction was sharp and the quickest since July 2020. The latest reading pointed to the fastest rate of reduction since July 2020. Monitored companies commonly indicated that the intensification of the COVID-19 crisis and tight restrictions curbed demand for services,” IHS Markit said in a release.

Business activity and new orders decreased in four out of the five broad areas of the service economy, with the fastest rates of contraction registered in Consumer Services. Transport & Storage was the only segment to post growth.

Data for manufacturing sector was released on July 1. Manufacturing activities also witnessed a drop for the first time in 11 months with Purchasing Manager’s Index (PMI) registering 48.1 in June against 50.8 in May.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “Given the current COVID-19 situation in India, it was expected that the service sector would take a hit. PMI data for June showed quicker declines in new business, output and employment that were sharp but much softer than those recorded in the first lockdown.

“Uncertainty about the path of the pandemic restricted business confidence among services firms, who were generally neutral in their forecasts for output in the year ahead. The overall level of sentiment slipped to a ten-month low.”

The report also highlighted further job loss, “In line with a further reduction in new work intakes, companies lowered payroll numbers midway through 2021. The fall in employment was the seventh in consecutive months and the fastest over this period,” it said.

Manufacturing and service sectors taken jointly, the Composite PMI Output Index fell from 48.1 in May to 43.1 in June. New orders at the composite level also declined for the second month in a row in June. The pace of contraction was sharp and the fastest since July 2020 as a quicker decrease in the service sector was accompanied by a renewed drop at goods producers.

Aggregate employment continued to contract, stretching the current sequence of job shedding to 16 months. The pace of reduction was moderate, although the quickest since October 2020.

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