December 2020: Services Activity Slows to 3-Month Low

India’s services activity slowed to a three-month low in December and staff hiring came to a halt on liquidity concerns, labour shortages and subdued demand as business optimism faded.

The IHS Markit India Services Business Activity Index dropped to 52.3 in December from 53.7 in November.

A reading above 50 indicates expansion while below that signals contraction.

Global Covid-19 restrictions, particularly travel bans impacted international demand for Indian services at the end of 2020. New export business decreased sharply, but at the slowest pace since March, according to the survey. December saw the ninth round of job shedding in 10 months.

“Although the news that the service sector remained in expansion mode during December is welcome, the fact that growth lost momentum yet again shouldn't be disregarded,” said Pollyanna De Lima, economics associate director at IHS Markit.

The slowdown is particularly notable given the size of the sector and the fact that the recovery only began in October.

Highlighting the “damaging impact of the pandemic on the service economy”, De Lima said that a spike in Covid-19 cases was reported as a key factor restricting growth of new work intakes among service providers, which in turn curbed the rise in output and led to increased business uncertainty about the outlook.

Sub-sector data highlighted Transport & Storage, Consumer Services and Finance & Insurance as the brightest spots where sales and output expanded in December. Contractions were noted in Information & Communication and Real Estate & Business Services.

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