Staff of Reuters 3 Minutes to Read BEIJING, China (Reuters) – According to a private poll released on Monday, growth in China’s services sector dropped drastically in June to a 14-month low, pulled down by a return of COVID-19 cases in southern China, adding to concerns that the world’s second-largest economy is losing steam. PHOTO FROM THE FILE: On November 26, 2020, people dine at a hotpot restaurant in Sanya, Hainan Province, China. Tingshu Wang/Tingshu Wang/Tingshu Wang/Tingshu Wang/Tingshu Caixin/Markit is a service provided by Caixin. In June, the Purchasing Managers’ Index (PMI) fell to 50.3, its lowest level since April 2020 and a considerable drop from May’s 55.1. It stayed barely above the 50-point threshold that distinguishes monthly growth from contraction. In June, China’s official services index showed a significant deceleration, while it remained in expansion zone. Smaller businesses are thought to be the focus of the private survey. Analysts say the PMI survey data, together with a downturn in the manufacturing sector, show that pent-up COVID demand has peaked, and China’s impressive economic recovery from the crisis is beginning to decelerate. China’s services industry has benefited from a steady rebound in spending in recent months, albeit being slower to recover from the pandemic than manufacturing. However, since late May, a COVID-19 epidemic of the more infectious Delta strain in Guangdong’s export and manufacturing region has slowed consumer and company activity, prompting the deployment of anti-virus measures. While the government acted rapidly to curb the fresh surge of cases, and economic disruptions are subsiding, a private study revealed that service providers’ commercial outlook for the coming year has sunk to its lowest level in nine months. A new company sub-index of 50.5 was likewise the lowest since April 2020, when the services sector was still stuck in COVID stagnation. As a result of the decreasing demand, businesses shed workers for the first time in four months in June. One bright area in the report was a significant reduction in inflationary pressures, which had previously eroded profit margins. Input costs climbed at the slowest rate since September 2020, while service providers lowered their pricing for the first time in 11 months to win new business. Caixin’s composite PMI for June, which covers both manufacturing and service activity, fell to 50.6 from 53.8 in May, a 14-month low. “In the aftermath of the pandemic, the manufacturing business has returned to normal, but the services industry remains vulnerable to regional resurgences,” said Wang Zhe, Senior Economist at Caixin Insight Group. “Furthermore, in the second half of this year, the low base effect from last year will continue to wane. Inflationary pressure, which is entwined with the economic decline, will continue to be a major issue.” Stella Qiu and Ryan Woo contributed reporting, and Kim Coghill edited the piece./n
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