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India’s services index remain in contraction zone for a second month

The weak reading in October belies any hope for signs of recovery in India's economy given the services industry accounts for more than half of the GDP.

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Mumbai: India’s main services index signaled a contraction for a second straight month, the weakest stretch since 2017, amid a prolonged economic slowdown.

The IHS Markit India Services Index rose to 49.2 in October from 48.7 in September, but still below the 50 reading that indicates a contraction. The industry accounts for more than half of the nation’s gross domestic product. The composite PMI fell to 49.6 from 49.8, weighed by slowing factory output.

“Anecdotal evidence highlighted subdued demand conditions, competitive pressures and a fragile economic situation,” IHS Markit economists led by Pollyanna de Lima said in a statement.

The weak reading in October belies any hope for signs of recovery in Asia’s third-largest economy after high-frequency indicators in the July-September period suggested a continued lack of growth momentum. Gross domestic product expansion cooled to a six-year low of 5% in the quarter ended June.

An October survey of purchasing managers at Indian factories, published last week, had the worst result since 2017.

What Bloomberg’s Economists Say

We see this as increasing the downside risks to our already downgraded GDP forecast for fiscal 2020. Looking ahead, we expect a turnaround in year on year growth numbers in the current quarter to be driven entirely by lower year earlier base effects.

— Abhishek Gupta, India economist

“It’s somewhat worrying to see the Indian service sector stuck in contraction, as firms react to muted demand by lowering business activity,” said Lima, principal economist at IHS Markit.

“Perhaps even more concerning was the downward revision to future expectations, given the possible detrimental impact of subdued business confidence on investment and job.”-Bloomberg


Also read: Indian economy is on a decline. So why are IMF and World Bank’s growth forecasts so high


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