Activity in China’s services sector in February expanded at the slowest pace in six months, as the sprawling industry reels from the government’s tough containment measures to stop the spread of local Covid-19 outbreaks, a survey showed on Thursday.
The Caixin/Markit services Purchasing Managers’ Index (PMI) dropped to 50.2 in February – the lowest since August and only a touch above the 50-point mark that separates growth from contraction on a monthly basis – from 51.4 in January.
The softer reading contrasted with a slight pickup in the services sector growth in an official survey on Monday, although both results pointed to a still soft expansion as the industry remains vulnerable to disruptions amid China’s zero-Covid approach.
More Chinese cities are battling local Covid-19 cases in recent weeks, with infections from the city of Hong Kong surging, although the total number of cases pales in comparison with those in other countries.
A sub-index for new business in the private survey stood at 48.8 in February, the first decline since August last year, as services firms reported measures to contain Covid cases, including the travel restrictions, impacted client demand.
New export business fell for the second straight month, although at a slower pace.
Demand for Services Contracts
That led to another reduction of payrolls at China’s services firms, but the extent of decline eased.
“Demand for services contracted, while supply expanded at a limited pace. The spread of Covid-19 in several regions hurt business operations of service companies,” Wang Zhe, a senior economist at Caixin Insight Group, said.
“Policymakers should enhance support policies to encourage employment, strengthen structural support for small and mid-size enterprises and effectively reduce the tax burden and fundraising costs for companies,” Wang said.
China’s economy rebounded strongly from a pandemic-induced slump in 2020, though momentum started to flag in the summer of last year, as a debt crisis in the property market and strict anti-virus measures hit consumer confidence and spending.
Top officials have vowed to stabilise growth this year and all eyes are on the annual meeting of its top legislative body that begins on Saturday (March 5), during which the government will unveil economic targets for the year and likely more stimulus measures.
The survey also showed inflationary pressures eased a bit. A sub-index for input costs stood at 52.5, compared with 54.5 the previous month, although it marked the 20-month of growth.
Confidence towards the year ahead, however, picked up to a three-month high as firms expect a strong post-pandemic recovery.
- Reuters with additional editing by Jim Pollard
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