Service activity contracts again in May, PMI at 12.6

Business activity across India's service sector continued to contract in May as Covid-19 led shutdowns impaired business operations, restricted consumer footfall and led to a demand collapse along with job cuts. The IHS Markit India Services Business Activity Index was 12.6 in May, up from April's record low of 5.4.
A reading above 50 on the index indicates expansion while lower than that shows contraction. The data was collected from May 12-27 across around 400 service sector companies.

“Although the headline figure rose from April's unprecedented low of 5.4, it remained at a level which, prior to the coronavirus pandemic, was unparalleled in over 14 years of data collection and pointed to an extreme drop in services activity across India,” HIS Markit said in the report.

As per the survey report, measures imposed to stem the spread of Covid-19 were a key reason behind the latest drop in sales. Around 95% of surveyed companies reported a fall in foreign demand when compared to April.

“Given the stringency of the lockdown measures imposed in India, it is no surprise to see the severity of the declines in April and May,” said Joe Hayes, economist at IHS Markit.

Low sentiment, slow recovery

The rate of job shedding remained strong by historical comparisons, despite easing since April. Lower staffing levels also coincided with a further deterioration in business sentiment. Output expectations for the coming 12 months slumped to their most negative since records began in December 2005 amid forecasts of prolonged economic weakness domestically and overseas.

A sister survey on Monday showed the pace of contraction in India’s manufacturing activity slowing in May but firms cut jobs at the quickest pace in over 15 years as the nationwide lockdown imposed since March 25 dented demand.

Put together, there was severe contraction in private sector business activity in May with the Composite PMI Output Index posting 14.8 from 7.2 in April.

“With economic output set to fall enormously in the first half of 2020, it is clear that the recovery to pre-Covid-19 levels of GDP is going to be very slow,” Hayes said.

Aggregate employment fell further during May, although a weaker decline at services companies contrasted with a steeper drop at goods producers. There was a notable easing in the rate of output price deflation, which continued to be outpaced by the drop in operating costs.