India's services activity contracted for fifth straight month in July - PMI

BENGALURU India’s dominant services industry, a key driver of economic growth, shrank for a fifth straight month in July as restraining measures to stop the spread of the coronavirus hurt business activity and led to record job cuts, a survey showed.

India has recorded the third highest number of coronavirus cases globally, behind only the United States and Brazil, with over 1.8 million confirmed infections and more than 38,000 deaths, according to a Reuters tally.

That has forced state and central governments to impose strict lockdown measures to curb the spread of the virus, keeping people at home and businesses closed, stifling demand and cementing fears of a deep recession.

The Nikkei/IHS Services Purchasing Managers’ Index INPMIS=ECI increased to 34.2 in July from 33.7 in June, however, it was still well below the 50-mark separating growth from contraction.

July was the fifth straight month the index was sub-50, the longest such stretch since a 10-month run to April 2014.

“The coronavirus pandemic and subsequent introduction of lockdown measures continued to weigh heavily on the Indian service sector in July. Business activity and new orders dropped again, with the rates of decline remaining rapid overall,” Lewis Cooper, an economist at IHS Markit, said in a release.

“Panellists frequently reported temporary company closures and weak demand as a result of the pandemic.”

Although slightly improved from June, sub-indexes tracking domestic and foreign demand remained firmly in contraction territory even though firms cut prices despite an uptick in input costs.

Meanwhile, firms remained pessimistic about the next 12 months and cut jobs at the fastest pace on record.

“With such a prolonged and significant downturn, any substantial recovery will take many months, if not years,” IHS Markit’s Cooper added.

A composite PMI, which includes manufacturing and services, suggested an ongoing deep contraction in Asia’s third-largest economy, falling to 37.2 from June’s 37.8. A Reuters poll shows analysts expect the economy would shrink 5.1% in the fiscal year 2020-21 – the biggest decline since 1979.

India’s worsening economic outlook has likely raised the chances the Reserve Bank of India will cut interest rates at its policy meeting on Thursday.

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