Activity in China’s services sector in January expanded at the slowest pace in five months, as a surge in local COVID-19 cases and containment measures hit new business and consumer sentiment while employment fell, a private survey showed on Monday.

The Caixin/Markit services Purchasing Managers’ Index (PMI) dropped to 51.4 in January – the lowest since August – from 53.1 in December. The 50-point mark separates growth from contraction on a monthly basis.

The soft reading is likely to reinforce market expectations that policymakers need to roll out more support measures to stabilise the faltering economy. China’s central bank has already started cutting interest rates and pumping more cash into the financial system to bring borrowing costs down, and further easing steps are expected in coming weeks.

A sub-index for new business in the survey stood at 51.1 in January, slower than the long-run series average and below 52.5 in the previous month.

Some services providers attributed slower growth to the COVID-19 outbreaks. In addition, rising cases abroad weighed on foreign demand, driving new export orders into contractionary territory for the first time in four months.

That led to a renewed fall in employment, marking the first decline in the data series since August last year, the survey showed.

“In December and January, the resurgence of COVID-19 in several regions such as Xian and Beijing forced local governments to tighten epidemic control measures, which restricted production, transportation and sales of goods,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data release.

“This year, policymakers should make stability their focus. They should prioritize improvements to employment and optimize the structure of the economy.”

The world’s second-largest economy got off to a strong start in 2021, rebounding from 2020’s pandemic-induced slump, but lost steam in the early summer, weighed by growing debt problems in the property market and COVID-19 outbreaks.

The survey also showed inflationary pressures persisted for China’s services firms. Input costs rose at a sharper rate in January, while prices charged accelerated to a three-month high as some companies passed on higher costs to customers.

Confidence towards the year ahead, although still high, slipped to a 16-month low, amid uncertainty about the pandemic.

Caixin’s January composite PMI, which includes both manufacturing and services activity, stood at 50.1, also the lowest since August and down from 53 the previous month.

China’s economy grew 4.0% in the fourth quarter from a year earlier, its weakest expansion in one-and-a-half years.

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