Services activity shrinks again in August, weakest since 2009

Employees at call centre provide service support to customers in the northeastern Indian city of Siliguri
Employees at a call centre provide service support to customers in Siliguri February 2, 2008. REUTERS/Rupak De Chowdhuri/Files

By Deepti Govind

BANGALORE (Reuters) - Indian services activity shrank in August at its quickest pace since the depths of the global financial crisis as new business dried up, a survey showed, the latest evidence that Asia's third-largest economy is rapidly losing steam even as policymakers battle a full-blown currency crisis.

Taken together with a survey of Indian factories published on Monday that showed activity shrank for the first time since early 2009, the data will stoke worries that growth in the July-September quarter could be even weaker than in April-June.

The HSBC Services Purchasing Managers' Index (PMI) compiled by Markit, slipped to 47.6 in August, the weakest since April 2009, from 47.9 in July.

A number below 50 denotes contraction.

"The numbers we have seen so far for July and August for both the manufacturing and service sectors point to a further slowdown in GDP growth during the third quarter," said Leif Eskesen, chief economist for India at survey sponsor HSBC.

The economy grew 4.4 percent in April-June, its slowest quarterly growth rate since early 2009, as mining and manufacturing contracted, data showed on Friday.

India's economic growth has almost halved in the past two years.

The PMIs suggest more trouble ahead as the government and central bank grapple with a currency crisis that has battered the rupee to record lows against the dollar, with no expectations or signs that it will rally any time soon.

The new business sub-index fell to 46.6 in August from 47.8 in July, the lowest in over four years and the second month running that demand has declined. Consequently, firms barely increased staffing levels.

And firms were less optimistic about the future - the business optimism sub-index posted its biggest one-month fall in nearly a year.

"Service sector activity slowed further in August led by weaker new business flows, which led to a slowdown in employment growth and a decline in sentiment among service sector companies," HSBC's Eskesen said.

Disappointing April-June GDP data, along with other economic woes and a dearth of investments, have prompted economists to sharply downgrade their growth forecasts for India.

HSBC cut its growth forecast for the year ending in March to 4.0 percent from its earlier 5.5 percent forecast on Monday, while last week Nomura cut its GDP forecast to 4.2 percent from 5.0 percent.

(Editing by Kim Coghill)