Development in China’s June providers exercise falls to 14-month low: Caixin PMI

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© Reuters. FILE PHOTO: People dine at a hotpot restaurant in Sanya, Hainan province, China November 26, 2020. REUTERS/Tingshu Wang

BEIJING (Reuters) – Growth in China’s services sector slowed sharply in June to a 14-month low, weighed down by a resurgence of COVID-19 cases in southern China, a private survey showed on Monday, adding to concerns the world’s second-largest economy may be starting to lose some momentum.

The Caixin/Markit services Purchasing Managers’ Index (PMI) fell to 50.3 in June, the lowest since April 2020 and down significantly from 55.1 in May. It held just above the 50-mark, which separates growth from contraction on a monthly basis.

China’s official services gauge had also shown a marked slowdown in June, though it remained well in expansion territory. The private survey is believed to focus more on smaller companies.

Coupled with a slowdown in the manufacturing sector, analysts say the PMI survey findings suggest that pent-up COVID demand may have peaked and China’s robust economic rebound from the crisis is starting to moderate.

Though slower to recover from the pandemic than manufacturing, a gradual improvement in consumption in recent months had boosted China’s services sector.

However, a COVID-19 outbreak of the more infectious Delta strain in the export and manufacturing hub of Guangdong since late May and the subsequent imposition of anti-virus measures have weighed on consumer and business activity.

While the government reacted quickly to contain the new wave of cases, and economic disruptions are easing, the private survey showed services providers’ business outlook for the year ahead slipped to the lowest in nine months.

A sub-index of new business stood at 50.5, also the lowest since April 2020 when the services sector was still mired in COVID paralysis. Firms also cut staff in June for the first time in four months, as a result of slowing demand.

One bright spot in the survey was a marked easing in inflationary pressures, which have squeezed profit margins. Input costs rose at the slowest pace since September 2020, and services firms cut their prices charged for the first time in 11 months to win new business.

Caixin’s June composite PMI, which includes both manufacturing and services activity, fell to a 14-month low of 50.6 from May’s 53.8.

“The manufacturing industry has returned to normal in the wake of the epidemic, while the services industry is still sensitive to regional resurgences,” said Wang Zhe, Senior Economist at Caixin Insight Group.

“In addition, the low base effect from last year will continue to weaken in the second half of this year. Inflationary pressure, intertwined with the economic slowdown, will still be a serious challenge.”

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