PMI services drops to three-month low in April – Mint

Data released by the analytics firm IHS Markit showed Purchasing Managers’ Index (PMI) for services sector declined to 54 in April from 54.6 in the preceding month. A figure above 50 indicates expansion, while sub-50 signals contraction.

“Indian services firms were optimistic regarding the 12-month outlook for business activity, but the overall level of positive sentiment fell to the lowest since last October. The escalation of the pandemic was the main drag on confidence,” the data analytics firm said.

PMI manufacturing in April improved a tad to 55.5 as new export orders rose at the fastest since October, cancelling out the impact of new domestic factory orders and output falling to eight-month lows, data released on Monday showed.

Disaggregated services sector data indicated that business activity and sales expanded in three of the five broad areas of the service economy, the exceptions being information and communication, and real estate and business services. Transport and storage was the brightest spot in April.

April data showed that travel restrictions and the covid-19 crisis continued to curb international demand for Indian services. New export orders declined for the fourteenth month running and at the quicker pace than registered in March.

On the jobs front, there was a further decline in overall service sector employment. Payroll numbers fell for the fifth month in a row in April, albeit at a slight pace that was the weakest since January. The vast majority of panellists kept headcounts unchanged amid reports of sufficient capacity to cope with current workloads.

Companies reported a sharp rise in expenses in April, which they linked to higher prices for food, freight, fuel and a wide range of other items. The overall rate of input cost inflation was the strongest seen in close to nine-and-a-half years.

Pollyanna De Lima, economics associate director at IHS Markit said firms foresee higher output volumes over the course of the coming year, but business sentiment was dampened by worries surrounding the pandemic. “One area of concern was inflation. Services firms noted the steepest rise in overall expenses in over nine years as global shortages of inputs and higher transportation costs continued to exert upward pressure on outlays. Companies absorbed most of the additional cost burden themselves, as indicated by only a slight increase in selling prices. The gap between rates of inflation for input prices and charges was one of the widest since the global financial crisis,” she added.

India’s inflation trajectory has been rising with wholesale inflation galloping to the highest in at least eight years in March at 7.39%, with rising fuel prices and higher input costs reinforcing concerns that price rises could aggravate because of supply constraints caused by lockdown-like curbs. India’s retail inflation has also accelerated to a four-month high at 5.52% in March as food prices quickened.

The escalating coronavirus cases across the country has forced many states to announce localized lockdowns and night curfews which is expected to delay a strong recovery in domestic economic activity. Brickwork Ratings on Tuesday revised its FY22 economic growth projection for India to 9% from 11% estimated earlier holding that the earlier presumptions of a V-shaped economic recovery is unlikely as the deadly second wave of covid-19 has brought an abrupt halt to India’s nascent economic recovery from the pandemic. Rating agency Standard & Poor’s last week said a drawn-out covid-19 outbreak with daily cases setting new records will impede India’s economic recovery.