India Services PMI falls to six-month low in January as Omicron variant dampens output

4 Feb 2022 , 10:18 AM

Posting 51.5 in January, the seasonally adjusted India Services Business Activity Index indicated a further increase in output. However, falling from 55.5 in December, the headline figure pointed to the slowest rate of expansion in the current six-month sequence of growth. The upturn was reportedly stymied by the intensification of the pandemic, the reintroduction of restrictions and inflationary pressures. According to survey participants, demand was restricted by the fast spread of the Omicron variant and the reinstatement of curfews in parts of the country.

The Composite PMI Output Index fell from 56.4 in December to 53.0 in January, signalling the slowest rate of expansion in the current six-month period of growth. Both services activity and manufacturing production increased at weaker rates.

Companies became increasingly worried that growth would be harmed by the intensification of the pandemic, the reintroduction of restrictions and inflationary pressures. Business sentiment remained positive, but slipped to a six-month low.

Prices charged for the provision of services in India continued to increase at the start of the year, with many companies suggesting that additional cost burdens were transferred to consumers. Despite quickening from December, the overall rate of output price inflation was moderate and in line with its long-run average.

Service sector jobs declined for the second month running during January, owing to reduced output requirements among some businesses and future uncertainty. That said, employment decreased at a slight pace that was broadly similar to December.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “The escalation of the pandemic and reintroduction of curfews had a detrimental impact on growth across the service sector. Both new business and output rose at slight rates that were the weakest in six months. Concerns about how long the current wave of COVID-19 will last dampened business confidence and caused job shedding. Firms were also alarmed about price pressures. “On this front, the latest PMI results brought worrying news as input prices increased at the sharpest rate in over a decade. Charges rose at a faster pace as some firms continued to transfer additional cost burdens to consumers, but the rate of inflation here was moderate as the vast majority of monitored companies left their fees unchanged since December. “Private sector growth was sustained at the start of the year but, with the slowdown seen in services mirrored by manufacturing, there were weaker expansions in aggregate sales and output.”