Services activity falls for first time in a year as sales growth stalls

Tokyo: India’s services activity in June weakened for the first time in more than a year due to slowing new business growth, the Nikkei-IHS Markit Services Purchasing Managers’ Index (PMI) showed on Wednesday.

At 49.6 in June, down from 50.2 in May, the services business activity index posted in contraction territory for the first time since May 2018. According to survey participants, weak sales, competitive pressures and unfavorable taxation all hampered output.

“PMI data for India indicated that economic conditions in the service sector weakened as broadly stagnant sales caused the first drop in business activity in over a year. Although the labor market showed signs of resilience, there was a notable slowdown in job creation,” it said, adding that optimism towards growth prospects was sustained but confidence was down from May.

Real estate and business services were the weakest link in June where a marked drop in new work translated into a faster contraction in output and unchanged employment. At the same time, consumer services recorded the first drop in business activity in one year.

Underlying data indicated that this was the result of the slowest rise in new work intakes in 11 months. Job creation was sustained but moderated to the softest since March 2018.

Pollyanna de Lima, Principal Economist at IHS Markit, said, “In the service sector, there was an outright contraction in business activity which was prompted by broadly stagnant sales. It is somewhat surprising to see some companies linking subdued demand to high tax rates, two years on from the Goods and Services Tax implementation with the hotel tax mentioned in particular.”

The latest PMI results for India bring some concerns over the sustainability of the relatively robust growth rates seen at the start of the year, and the ability of companies to create jobs, she said.

“Looking at the opening quarter of the fiscal year 2019-20, we see the slowest upturn in private sector output since the last quarter of the fiscal year 2017-18 which dragged employment growth down to a notable extent,” said de Lima.


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