Services continue to recover, but at a slower pace

The largest contributor to GDP (Gross Domestic Product), services, continued to march on the recovery path during November as the Purchasing Managers’ Index (PMI) for the sector recorded 53.7. Also, for the first time in nine months, employment was up.

Though the index posted above the critical 50 mark that separates growth from contraction for the second month in a row during November, it is a little lower than reading of 54.1 in October. Meanwhile, the good news is that the overall level of positive sentiment climbed to the highest since February amid predictions that market conditions would normalise once a vaccine for the coronavirus disease 2019 is rolled out.

Service sector contributes around 55 per cent to the GDP.

The latest reading of PMI pointed to a solid pace of expansion, says IHS Markit, the economic research agency. It is the agency which prepares the index based on compilation of responses from questionnaires sent to a panel of around 400 service sector companies. A diffusion index is calculated for each survey variable.

Job rise

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that the Indian service sector continued to recover from the coronavirus-induced contractions recorded from March through to September. Companies enjoyed a further rise in new work intakes and responded to this by lifting business activity and employment. The increase in jobs was marginal at best, but nevertheless the first since the onset of Covid-19. There was also an improvement in business confidence, which bodes well for employment over the coming months.

Covid-19 impact

According to her, output and sales across the private sector have held up well, but there were some signs of growth losing momentum among goods producers and service providers. As has been the case in most nations worldwide, the manufacturing sector outperformed its services counterpart as the latter was hit harder by the Covid-19 pandemic. When reporting growth constraints, travel restrictions and low footfall, as consumers opt to stay home to avoid catching the disease, remained key themes of the services PMI survey.

“Low interest rates aimed at mitigating the negative impacts of Covid-19 on the economy and the latest rise in services employment are supportive factors for domestic demand. However, a pick-up in inflationary pressures could threaten the recovery. The PMI results for November showed the strongest increase in service sector input costs for nine months, which brought in the sharpest upturn in fees for over three years,” she said.

An important point here is that services sector gave new jobs, ending an eight-month sequence of job shedding. That said, the rate of employment growth was marginal overall as some companies reported having sufficient staff to cope with current workloads.

Looking ahead, services firms were confident of a rise in business activity in the coming 12 months. The overall degree of optimism improved to a nine-month high. Positive sentiment was boosted by hopes that a vaccine for Covid-19 will be rolled out.

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