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Covid-19 lockdown wipes out service activity in April, PMI drops to 5.4

As many as 97 per cent of the 500 companies surveyed by IHS Markit, which conducts the survey, reported a fall in output

Topics
Coronavirus | PMI services | Indian Economy

Subhayan Chakraborty  |  New Delhi 

company, firms, jobs, employees, services
The most severe contraction in services activity since December 2005 saw demand and sales, both in the domestic arena and international markets reach bottom-scraping levels

The month-long of the country in April to check the spread of led to services activity in India contracting at the fastest pace in over 14 years to unprecedented low levels, according to a monthly survey released on Wednesday.

The IHS Markit Purchasing Managers Index (PMI) saw an extreme decline in April, to just 5.4. This was significantly lower than March's 49.3. In PMI parlance, the 50-mark threshold separates expansion from contraction. The global (Covid-19) pandemic had already cut short the good times in India’s services sector, which had seen contraction in March because overseas demand fell and exports received a hard knock.

But in April, the firms surveyed said measures to stem the spread of the coronavirus, such as restrictions on the movement of citizens and shutdowns in important sub-sectors like information technology, hospitality and transportation wiped out almost all business. As many as 97 per cent of the 500-companies surveyed by IHS Markit which conducts the survey, reported a fall in output.

The most severe contraction in services activity since December 2005 saw demand and sales, both in the domestic arena and international markets reach bottom-scraping levels. In a first, exports fell to 0 as measures to stem the spread of the virus overseas had caused demand to fall across all key export markets.

As a result, layoffs took place across the sector at record pace. However, the survey said approximately 90 per cent of respondents reported unchanged workforce numbers. Before the lockdown, experts had big hopes for services sector, which scaled an 85-month high in February with rising new orders from overseas markets creating stable growth. But job growth had stagnated in recent months with number of jobs being created falling to a three-month low even during February’s boom period.

Although output fell sharply, panel comments indicated that a number of clients had cancelled pre-existing orders, leading to a reduction in backlogs of work.

The rise in spare capacity was the strongest ever recorded in the survey history.

However, experts argue that going forward the outlook remains optimistic. "It is clear that the economic damage of the Covid-19 pandemic has so far been deep and far-reaching in India, but the hope is that the economy has endured the worst and things will begin to improve as measures are gradually lifted,” said Joe Hayes, economist at IHS Markit. This was echoed by other experts. "April will undoubtedly be the harshest month of the current financial year. It had the most stringent and the worst global demand conditions. Going forward, we expect the situation to ease a little," said D K Joshi, Chief Economist at CRISIL.

But the firms themselves are less hopeful. Expectations towards future output slumped for a second successive month to their weakest since December 2015, the survey pointed out. According to the firms, expectations of a protracted decline in the economy weighed on their sentiment.

However, with input costs dropping precipitously due to the shutdown, firms were able to reduce output charges by a wide margin. The rate of deflation was a new survey record.

Earlier this week, a similar survey showed that manufacturing activity had contracted at the highest pace in over 15-years. Manufacturing PMI stood at just 27.4 in April, showing the sharpest deterioration in business conditions across the sector. With both domestic demand and export orders falling at their highest-ever paces, new businesses collapsed at a record speed and led to major job losses across the manufacturing sector in India.

The seasonally adjusted IHS Markit Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of the country's Gross Domestic Product, sank to a new record of 7.2 in April, down from March's 50.6, signalling a serious slowdown in overall private sector output growth.

First Published: Wed, May 06 2020. 11:11 IST
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