Staff of Reuters Read for 4 minutes (Adds June air travel data, quotes from analysts and a cinema operator) (Reuters) – BEIJING, July 5 (Reuters) – After a revival of COVID-19 in southern China, growth in China’s June services sector dropped drastically to a 14-month low, according to a private survey released on Monday, increasing to concerns that the world’s second-largest economy is losing steam. In June, the Caixin/Markit services Purchasing Managers’ Index (PMI) fell to 50.3, the lowest since April 2020 and much lower than 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 often the focus of the private survey. Analysts say the PMI survey data, together with a slowdown in manufacturing, show that pent-up COVID demand has peaked, and China’s impressive economic recovery from the crisis is beginning to decelerate. The services sector has benefited from a modest rise in consumption in recent months, albeit being slower to recover from the epidemic than manufacturing. However, in May and June, a COVID-19 epidemic of the more infectious Delta strain in Guangdong’s export and manufacturing sector and the consequent installation of anti-virus measures slowed consumer and business activity. In June, a sub-index of new business fell to 50.5, the lowest level since April 2020, when the sector was still reeling from COVID-19 and lockdowns. As a result of the decreasing demand, businesses shed workers for the first time in four months in June. Reuters reported that during the recent outbreak, social distance rules hurt karaoke shops, restaurant owners, and movie theater owners in Guangdong province. “Due to the outbreak in Guangzhou, our theater was closed from early June until early July. There were no clients at all “Zhu, a Zhongying International Cinema receptionist in Guangzhou, the province capital, stated. “However, since we reopened on July 3, client flow actually rose,” Zhu explained, “most likely because the pandemic is now under control or the summer vacation has begun.” Some experts believe the steep slowdown is a one-time occurrence. “Both the official and Caixin services PMIs may rebound in July, led by the release of pent-up demand for services following the containment of the last wave of COVID-19 in Guangdong and an anticipated relaxation of some social distancing measures,” said Lisheng Wang, Nomura’s China economist. 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. According to researchers, fresh COVID-19 outbreaks are particularly vulnerable to air travel, lodging, and catering. According to aviation data company Variflight, domestic airline capacity decreased to its lowest level in two years in June, as measured by available seat kilometers (ASK). Local COVID-19 cases and summer thunderstorms impacted flight capacity in Guangdong, according to the report. 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. Caiman’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. (Beijing newsroom’s Stella Qiu and Ryan Woo contributed reporting; Kim Coghill edited the piece.)/n
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