Services PMI moderates to three month low in December amid Omicron fears

India’s services sector activity moderated to a three month low in December with many states imposing night curfews ahead of the Christmas season to curb the spread of Omicron.

Data released by the analytics firm IHS Markit showed that the Purchasing Managers’ Index (PMI) for services fell to 55.5 in December from 58.1 in November. A reading above 50 indicates expansion in economic activity and a number below that signals contraction. Manufacturing PMI for December had also declined to a three month low, data released on Monday showed.

“Underlying data suggested that the latest increase in new orders was centred on the domestic market, as new business from abroad fell further. The deterioration in international demand was linked to COVID-19 restrictions, particularly around travelling,” the data analytics firm said.

December data also showed renewed job shedding in the service economy, but the rate of contraction was only slight. “In fact, the vast majority of surveyed companies (96%) left payroll numbers unchanged from November. Firms generally suggested that employment levels were sufficient to cope with current workloads,” it added.

Pollyanna De Lima, economics associate director at IHS Markit said 2021 was another bumpy year for service providers and growth took a modest step back in December. “Services firms were generally confident that output would increase in 2022, but fears of new COVID-19 waves and price pressures somewhat hindered optimism. Uncertainty surrounding the outlook, and a general lack of pressure on capacity, led to a renewed fall in employment during December. That said, the decline was marginal and a recovery is expected this year should demand for services remain favourable,” she added.

According to the latest Google Mobility data for December 30, in Delhi, retail and recreation, public transport, workplace visits declined by 19 per cent, 7 per cent, and 17 per cent, respectively.

The Omicron spread is expected to adversely impact the contact-sensitive services sector more than the manufacturing sector. During the second wave of the pandemic earlier this year, while manufacturing mostly held up, services contracted in May, June, and July, according to the PMI data. During the first wave of the pandemic in 2020, a contraction in the services sector was sharper than in manufacturing and took seven months to return to expansion territory.

The World Bank and Moody’s have projected the Indian economy to grow at 8.3 per cent and 9.3 per cent, respectively. ICRA last week retained its 9 per cent growth forecast for FY22. The Reserve Bank of India (RBI) has retained its projection of 9.5 per cent annual GDP growth in FY22 although it has revised downwards its December-quarter growth estimate to 6.6 per cent from 6.8 per cent, and the March-quarter growth estimate to 6 per cent from 6.1 per cent. The Indian economy expanded 8.4 per cent in the September quarter, surpassing its pre-pandemic size, as vaccination picked up pace and services activity returned to normal after the disruption caused by the devastating second wave of the pandemic in the June quarter.