May services sector output contratcs first time in eight months

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SME Times News Bureau | 03 Jun, 2021
Covid resurgence heavily dented India's service sector output which contracted last month.

Moreover, the data indicated that India's service providers struggled in May, with the intensification of the Covid-19 crisis causing renewed declines in new business and output.

At 46.4 (index value) in May, down from 54 in April, the seasonally adjusted India Services Business Activity Index was in contraction territory for the first time in eight months.

The seasonally adjusted index reading remained above the critical 50-mark that separates growth from contraction.

"The latest reading pointed to a solid rate of reduction that was nevertheless slower than those seen in the aftermath of the Covid-19 outbreak," IHS Markit said in the PMI report.

According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions.

"Growth of new work intakes ground to a halt in May, with companies noting the first decline in sales since September 2020. Survey participants indicated that demand was dampened by the intensification of the Covid-19 crisis."

"International demand for Indian services also worsened, with new export business falling at the quickest rate in six months. The drop was attributed to international travel restrictions and business closures."

Besides, May data pointed to a renewed decline in private sector activity across India as the service economy dipped back into contraction.

Resultantly, the Composite PMI Output Index was down from 55.4 in April to 48.1, a reading indicative of a moderate pace of reduction.

"Although manufacturing production growth was sustained, the increase was the slowest in the current ten-month sequence of expansion."

"Aggregate new orders decreased for the first time in nine months, albeit at a moderate pace. The downturn was centred on the service sector, with factory sales rising only marginally at manufacturers in May."

Additionally, the report pointed out that rate of input cost inflation at the composite level eased to a four-month low in May, with slower increases noted at manufacturing firms and their services counterparts.

"While PMI data released at the start of the month showed that the manufacturing industry managed to keep its head above water in May, the service sector struggled as the pandemic escalated," IHS Markit;s Economics Associate Director Pollyanna De Lima said.

"The intensification of the COVID-19 crisis and associated restrictions suppressed domestic and international demand for Indian services. Total sales decreased for the first time in eight months, while the fall in external orders was the most pronounced since last November."