Services sector expands for the first time since Covid-19 hit

India’s services sector expanded for the first time in eight months in October as shopping malls and restaurants reopened following the lifting of lockdown curbs, in yet another indicator of a recovery underway in Asia’s third-largest economy.

The purchasing managers’ index (PMI) for services rose to 54.1 from 49.8 in September, according to data analytics firm IHS Markit. It was the highest reading since February’s 57.5. A reading above 50 indicates expansion.

The survey findings, along with positive signals from other lead indicators, prompted the finance ministry to claim economic growth could accelerate from hereon and touch pre-Covid-19 levels by the year-end.

India’s PMI for manufacturing recorded the strongest growth in 13 years in October at 58.9, amid robust sales growth, signifying faster normalisation in activities of the manufacturing sector than the services sector, showed data issued on Monday by IHS Markit.

“With the onset of the festive season, overall consumption is expected to see a further increase, enhancing prospects of faster economic normalisation,” the finance ministry said in its latest monthly economic review released on Wednesday.

According to services companies, the relaxation of Covid restrictions enabled them to secure new work and improve business activity in October.

“In both cases, the increases ended seven-month sequences of reduction. Moreover, optimism towards the year-ahead outlook for output strengthened. Still, there was another monthly decline in employment. On the price front, the rate of input cost inflation picked up to an eight-month high, but there was a softer rise in prices charged for the provision of services,” IHS Markit said.

“It’s encouraging to see the Indian services sector joining its manufacturing counterpart and posting a recovery in economic conditions from the steep deteriorations caused by the pandemic earlier in the year,” said Pollyanna De Lima, economics associate director at IHS Markit.

“Service providers noted another decline in employment, but anecdotal evidence suggested that efforts to hire had been hampered by labour shortages. Survey participants indicated workers on leave had not returned and that widespread fear of Covid-19 contamination continued to restrict staff supply,” she added.

Movement of high-frequency indicators in October point towards a broad-based resurgence of economic activity, notably in healthy kharif or winter crop output, power consumption, rail freight and automobile sales, the finance ministry said. “India stands poised to recover at a fast pace and reach pre-Covid levels by the end of the year, barring the incidence of a second wave that may be triggered by the fatigue with social distancing,” it said.

There are signs of pent-up demand that could taper off post the festive season as there is still much uncertainty related to the virus and government’s fiscal response remains conservative, said Tanvee Gupta Jain, an economist with UBS Securities India Pvt. Ltd.

Source: Read Full Article