Economy

Services PMI at 41.2, lowest in 11 months: IHS Markit

Our Bureau New Delhi | Updated on July 05, 2021

This is expected to affect GDP growth rate during April-June quarter

After Manufacturing, services too dipped in June as Purchasing Managers’ Index (PMI) registered further contraction to 41.2 from 46.4 in May. Worst thing is that job shedding accelerated.

PMI data are released monthly by IHS Markit, in advance of comparable official economic data.

“June data indicated that services firms endured further losses of new business as the emergence of the pandemic and the reintroduction of containment measures restricted demand. New work intakes and output contracted at the fastest rates since July 2020, which prompted companies to reduce employment again,” the agency said.

Services’ share in GDP

On Thursday, the agency had said that second wave of pandemic coupled with local lockdown pushed manufacturing activities in reverse gear as PMI for June dipped to 48.1. Services has maximum share in India’s Gross Domestic Product (GDP) with over 57 per cent contribution. Manufacturing has around 17 per cent share in GDP. Both the sectors are facing job loss. This means almost two third of the economy was not in good shape during April-June quarter. This is expected to affect GDP growth rate during April-June quarter, for which official data to be out in August.

Both PMIs are prepared by compiling responses from questionnaires sent to a panel of around 400 companies each from manufacturing and services sector. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that 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,” she said.

Employment

Talking about job loss, the agency said that in line with a further reduction in new work intakes, lowered payroll numbers midway through 2021. The fall in employment was the seventh in consecutive months and the fastest over this period. The decline in jobs was widespread across the five monitored sub-sectors, and led by Consumer Services,” it said.

Talking about overall about overall scenario, De Lima said that after losing growth momentum in recent months, the manufacturing industry dipped into contraction territory midway through 2021. As a result, there were faster reductions in private sector sales, output and jobs. "With India expanding its vaccine options and the government announcing ambitious plans to immunise the entire adult population by the end of the year, it is hoped that the pandemic can be brought under control and a sustainable economic recovery can begin,” she said.

Published on July 05, 2021

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