Services PMI: Unlock 1.0 brings some relief but revival far away

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MUMBAI: With the lockdown relaxed considerably in most of India, economic activity is slowly creeping up.

The headline services purchasing manager’s index (PMI) reading for May was at 12.6, up from the historic low of 5.4 in April. A reading below 50 denotes contraction while that above shows expansion in activity.

This bounce was expected as lockdown restrictions were eased during the second and third phase. In fact June onwards, excluding big cities, businesses in most regions are expected to resume operations and this number will likely show sharp improvements in the coming months.

The government announced last month that it would slowly allow businesses to open up. Small shops to even malls have now been allowed to reopen beyond containment zones. But given that covid-19 infection rate in cities hasn’t slowed, most urban centres remain under stringent restrictions.

Also, there are some sombre signs in the services PMI reading.

Sentiment hasn’t perked up at all. “Output expectations for the coming 12 months slumped to their most negative since records began in December 2005 amid forecast of prolonged economic weakness domestically and overseas,” IHS Market said in its release.

Ergo, employment prospects remain low as well.

Services sector is labour intensive and also requires social interactions than manufacturing. Also, both the ambit and demand for services is far wider and stronger in cities than other areas. Since most big cities are still under strict lockdown, services is unlikely to show a quick revival.

“While we anticipate that June will see better performance on account of the calibrated reopening and a return to normal for several parts of the country, underlying weakness is likely to persist for some time,” Rahul Bajoria, senior economist with Barclays Bank Plc wrote in a note.

Economists expect the economy to contract 4.5-7.0% in the current fiscal.

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