Growth in China's June services hits 14-month low

Beijing

GROWTH in China's June services sector slowed sharply to a 14-month low, after a resurgence of Covid-19 in southern China, a private survey showed on Monday, adding to concerns the world's second-largest economy may be losing 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 also showed a marked slowdown in June, though it remained well in expansion territory. The private survey typically focuses more on smaller companies.

Coupled with a manufacturing slowdown, analysts said the findings suggest that pent-up Covid-19 demand may have peaked and China's robust economic rebound from the crisis is starting to moderate.

Although slower to recover from the pandemic than manufacturing, a gradual improvement in consumption in recent months had boosted the services sector. But a Covid-19 outbreak of the more infectious Delta strain in the export and manufacturing hub of Guangdong from May to June and the subsequent imposition of anti-virus measures weighed on consumer and business activity.

A sub-index of new business stood at 50.5 in June, also the lowest since April 2020 when the sector was still paralysed by Covid-19 and lockdowns. Firms also cut staff in June for the first time in four months as a result of slowing demand.

Karaoke outlets, restaurant owners and cinema operators in Guangdong province said that their business was adversely impacted by social distancing rules during the latest outbreak.

Some economists said the sharp slowdown was a one-off.

"Both official and Caixin services PMIs may rebound in July, driven by the release of pent-up demand for services following the containment of the latest wave of Covid-19 in Guangdong and a likely relaxation of some social distancing rules," said Lisheng Wang, China economist at Nomura.

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. Air travel, accommodation and catering are especially susceptible to new Covid-19 outbreaks, analysts said.

One bright spot in the survey was a marked easing in inflationary pressures, which have squeezed profit margins. REUTERS