Service sector growth at three-month low in Dec due to Covid: PMI survey

PMI fell to 52.3 in December from 53.7 in November; Companies fire workers due to liquidity problem among other factors

Recovery in the services sector, which dominates the Indian economy, continued to lose momentum in December and fell to a three-month low, owing to competitive pressures and the impact of Covid-19 on demand, showed a widely tracked IHS Markit Purchasing Managers’ Index (PMI) survey. Employment contracted after rising in November for first time in nine months as companies dealt with liquidity concerns and subdued demand.

Services PMI fell to 52.3 in December from 53.7 in November. The December reading was the lowest since the services sector started growing in October. A PMI reading above 50 indicates growth and a print below that means contraction.

Companies indicated that growth was supported by new business as marketing efforts bore fruit, though curbed by competitive pressures and the Covid-19 pandemic.

Global Covid-19 curbs restricted international demand for Indian services. New export business decreased sharply, but at the slowest pace since March. 

“Given the damaging impact of the pandemic on the service economy, some companies are facing financial difficulties, which is preventing staff hiring,” said Pollyanna De Lima, economics associate director at IHS Markit.

Lima said it is clear that the early part of 2021 will continue to be challenging. “But we’re looking at a sustainable recovery and some return to normality once Covid-19 vaccines become available,” Lima added.

Although companies maintained an upbeat view on output, the overall level of positive sentiment fell from November.

Sub-sector data highlighted transport and storage; consumer services; and finance and insurance as the brightest spots, where sales and output expanded in December. Contractions were noted in information and communication; and real estate and business services.

Input costs increased at the quickest pace since February. 

Survey participants reported higher prices for a number of items, including cleaning products and fuel.

Despite the intensification of cost inflationary pressures, the December data showed a renewed reduction in prices charged for the provision of services in India. Those companies that offered discounts mentioned attempts to beat competition and stimulate demand.

Despite the Manufacturing PMI increasing a tad in December compared to the previous month, the composite PMI output index fell from 56.3 in November to 54.9 in December, a three-month low.