Services Activity Contracts for First Time in 3 Months in May

 Services Activity Contracts for First Time in 3 Months in May

Services activity contracted for the first time in three months in May even as business optimism touched the highest in over three years. The Nikkei-IHS Markit Services Purchasing Managers’ Index declined to 49.6 in May from 51.4 in April. India’s services activity contracted for the first time in three months in May due to stagnation in new orders even as business optimism touched the highest in over three years, a private survey showed.

The Nikkei-IHS Markit Services Purchasing Managers’ Index declined to 49.6 in May from 51.4 in April. A reading below 50 on this surveybased index shows contraction.“The performance of the service sector was disappointing in May, as output dipped into contraction for the first time in three months,” said Aashna Dodhia, economist at IHS Markit and author of the report. Manufacturing PMI released by the agency last week had shown a decline in factory activity with the index dropping to 51.2 in May from 51.6 in April.

The seasonally adjusted composite PMI Output Index fell from 51.9 in April to 50.4 in May as modest manufacturing sector growth outweighed the marginal decline in services. The services sector has about 60% weight in the Indian economy. India saw the slowest improvement in the health of the overall economy since February in May, the survey said. The outlook at the start of the new fiscal is in sharp contrast with upbeat official numbers at the end of the last fiscal.

Data released last week showed the Indian economy expanded at its fastest pace in seven quarters at 7.7% in the January-March period. Overall, the economy grew 6.7% in FY18 and is forecast to further gather pace to 7.4% in FY19. Rising crude prices and inflation, a depreciating rupee and potentially higher interest rates have emerged as headwinds. The Reserve Bank of India’s monetary policy is expected to change its stance to a hawkish one in the monetary policy review on Wednesday.

Despite rising macroeconomic concerns, businesses were confident of the economy doing better in the current fiscal. “A bright spot of the services PMI data was that business sentiment was the strongest since January 2015, rooted in expectations of improvements in demand conditions in the year ahead,” Dodhia said. The new business sub-index declined to 50.2 in May from 51.4 in April and the lesser demand resulted in jobs growth slowing to the weakest since last December. Input cost inflation picked up from April’s recent low and was solid overall, the survey said, but service providers could not fully pass on higher cost burdens to clients, impinging profit margins. Jobs growth was modest but evident across all monitored broad sectors, with the sharpest increase in information and communications.

The Economic Times, New Delhi, 06th June 2018