Services Activity Collapses As Covid-19 Paralyses Global Economy

India’s services activity suffered a shock collapse in April as the coronavirus lockdown crippled global demand, causing a historic spike in layoffs and reinforcing fears of a deep recession in Asia’s third-largest economy, a private survey showed.

The grim result for the industry, the engine of economic growth and jobs, underlined the pandemic’s sweeping impact across India as authorities extended a nationwide lockdown, in effect since March 28, until May 17.

The Nikkei/IHS Markit Services Purchasing Managers’ Index plunged to an eye-popping 5.4 in April from March’s 49.3, an unprecedented contraction since the survey first began over 14 years ago.

It also shattered a Reuters poll forecast of 40 and was way off the 50-level separating growth from contraction, with the single digit outcome marking by far the most extreme result among major economies.

“The extreme slide in the headline index, which fell by over 40 points, shows us that the strict lockdown measures have led to the sector essentially grinding to a complete standstill,” Joe Hayes, an economist at IHS Markit, said in a release.

The steep downturn in activity underlined the widespread havoc wrought by the pandemic worldwide, with many fearing the worst global recession since the 1930s.

All of the survey’s key gauges plummeted. An index measuring foreign demand for services ceased to an unprecedented 0.0, while an overall demand index also fell to a historic low and firms laid off workers at the quickest clip ever.

The latest findings came on the heels of a sister survey on Monday showing factory activity contracted at its sharpest pace on record.

That, combined with a services sector in freefall, dragged the composite PMI to an all-time low of 7.2 last month from March’s 50.6 and pointed to a crippling economic blow.

A Reuters poll showed the Indian economy is likely to suffer its worst quarter since the mid-1990s in the April-June quarter, contracting 5.2%.

The economic shock is likely to put pressure on Prime Minister Narendra Modi to unveil new measures but the government has limited fiscal policy space to respond to the crisis.

The RBI has already cut its repo rate and reverse repo rate by 75 basis points and a cumulative 115 basis points respectively since the government-imposed lockdown.

“Historical comparisons with GDP data suggest that India’s economy contracted at an annual rate of 15% in April. It is clear that the economic damage of the COVID-19 pandemic has so far been deep and far-reaching in India,” IHS Markit’s Hayes said.

“But the hope is that the economy has endured the worst and things will begin to improve as lockdown measures are gradually lifted.”

The survey pointed to a long hard road ahead, as optimism about the next 12 months slumped to the lowest in over four years.

As of Tuesday, India had recorded over 46,000 coronavirus cases and more than 1,500 deaths. The true extent of infections, however, may be much higher in a country where millions of people do not have access to sufficient healthcare.