Data released on March 4 by IHS Markit showed the services sector barely shrugged off the malaise caused by the Omicron variant-led third wave of COVID-19, which had dragged services activity to a six-month low in January.
A PMI reading above 50 shows expansion in activity, and one below 50 indicates contraction.
"Growth in the service sector failed to rebound as meaningfully as many would have hoped given that COVID-19 cases receded considerably from January's new wave and restrictions were lifted," noted Pollyanna De Lima, Economics Associate Director at IHS Markit.
"New business and services activity expanded only modestly, and at the second-slowest rates since last July. Looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth," De Lima added.
While service providers faced higher costs due to a rise in prices of chemicals, energy, food, labour, metals, plastics, and retail-related components, the increase in input cost inflation was lower than January's 10-year high.
Service providers continued to pass on these higher costs to consumers in February, although the output price inflation cooled down to a five-month low.
Even as prices continued to increase, new business increased at a faster - albeit lower than average - rate last month. On the downside, new business from abroad fell at the fastest rate since October 2021. Consequently, services sector employment fell for the third consecutive month in February. Worryingly, the fall in employment last month was the fastest since July 2021.
The marginal increase in the services PMI in February meant the composite index only edged up to 53.5 from 53.0. Data released on March 2 had shown the manufacturing PMI had risen to 54.9 in February from 54.0 in January.
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