The country’s services sector contracted in December for the second consecutive month, pointing to the continued impact of demonetisation.

The Nikkei India Services Business Activity Index contracted marginally to 46.8 in December from 46.7 in November indicating a further solid contraction in output.

The downturn was broad-based by sub-sector, with hotels and restaurants being the worst performers.

In December, the new services business fell by its sharpest level since September 2013.

With factory production also showing a sharp downturn in December, the Nikkei India Composite PMI Output Index fell to 47.6 in the month from 49.1 in November. The Nikkei India Manufacturing PMI had also fallen to 49.6 for the last month.

A reading above 50 indicates expansion while a reading below this reflects contraction in performance.

Warning that an imminent rebound from the rupee demonetisation is unlikely, Pollyanna de Lima, economist at IHS and the author of the report, said, “Combined with the manufacturing PMI, data suggests that Indian GDP is set to grow in the third quarter of the fiscal but a slowdown is likely.”

She further said that the average PMI activity index reading for the October-to-December quarter was the lowest since early 2014.