Services sector activity in February at 1-year high on rise in demand

Services sector activity grew at its fastest pace in a year, helped by improved domestic demand and more favourable market conditions, even as their exports continued to decline in February, showed a monthly survey.

However, firms continued to slash workforce as input cost inflation touched an eight-year high amid reports of higher freight, fuel and retail prices, according to the widely tracked IHS Markit purchasing managers' index (PMI) survey.

PMI rose to 55.3 in February from 52.8 in January, owing to a quicker increase in new orders.

Before this, PMI was the highest at 57.5 in February 2020, or a month before a nationwide lockdown was announced to check Covid-19.

New work intakes expanded for the fifth straight month. According to monitored companies, marketing efforts and increases in new clients led to sales growth.

Panellists continued to indicate that the Covid-19 pandemic and travel restrictions curbed international demand for their services. New export orders declined for the 12th month running, albeit at the weakest rate since last March.

On continued fall in employment, a number of companies suggested the pandemic restricted labour supply. The pace of job shedding accelerated from January, but was moderate overall.

The rate of input costs inflation accelerated to the strongest since February 2013.

However, competitive pressures prevented companies from lifting their own fee. February highlighted a broad stabilisation of selling prices, following marginal declines in each of the prior two months.

In a sign of capacity pressure, services companies signalled a further increase in outstanding business halfway through the final quarter of the fiscal year 2021. The pace of backlog accumulation was solid and quickened from January.

Hopes that the vaccine programme will be successful in reducing case numbers across the country underpinned positive expectations towards growth prospects. The overall degree of optimism regarding the 12-month outlook for business activity strengthened to a one-year high.

Transport & storage was the best-performing segment of the service sector out of the five categories monitored by the survey, recording the strongest increases in new business and output.

Information & communication was the only sub-sector to post contractions in sales and business activity in the latest month.

Companies in this category also bucked the general trend of positive growth projections and signalled a neutral outlook for output.

Combining with PMI for manufacturing — which marginally eased in February from January, but remained at an elevated level of 57.5 — private sector output rose at the quickest pace in four months during February. The composite PMI output index increased from 55.8 in January to 57.3 in February, highlighting a sharp rate of expansion that outpaced the series average.

Pollyanna De Lima, economics associate director at IHS Markit, said, “Economic activity is generally expected to recover in Q4FY21 after coming out of technical recession in Q3, and the latest improvement in the PMI indicators points to a strong expansion in Q4, should growth momentum be sustained in March.”

The economy grew 0.4 per cent in Q3 after two successive quarters of decline had put it into recession. However, the GDP data showed the economy might again decline in Q4 by 0.1 per cent.