Economic Indicators

China Services Sector Activity Contracts, Sharpest Decline Since Feb. 2020

2022.04.06 08:43

China Services Sector Activity Contracts, Sharpest Decline Since Feb. 2020

By Gina Lee

Investing.com – China’s services sector activity fell at the sharpest pace in two years in March 2022, a private sector survey showed on Wednesday. The survey also showed that the country’s latest outbreak led to restricted mobility and weighed on demand.

The Caixin services Purchasing Managers’ Index (PMI) was 42, compared with the 50.2 figure from the previous month. It fell below the 50-mark indicating growth and saw the sharpest activity decline since February 2020, the onset of the COVID-19 pandemic.

Meanwhile, the Caixin manufacturing purchasing managers index (PMI) released earlier in the week was 48.1. The manufacturing PMI was 49.5 and the non-manufacturing PMI was 48.4.

Contact-intensive services sectors such as transportation, hotel, and catering were hurt the most, which clouded the outlook for a rebound in consumption in 2022, according to analysts. The latest COVID-19 outbreaks and decreasing demand reduced firms’ appetite for additional staff, in turn leading to a fall in the employment sub-index.

Although firms remained generally upbeat about output over the next year, optimism was at a 19-month low amid concerns over COVID-19 and the economic impact of the war in Ukraine.

“Overall, both manufacturing and services activities weakened in March due to the epidemic. Similar to previous COVID-19 outbreaks in China, the services sector was more significantly affected than manufacturing,” Caixin Insight Group senior economist Wang Zhe said in a statement accompanying the data release.

“Policymakers should look out for vulnerable groups and enhance support for key industries and small and micro businesses to stabilize market expectations.”

As China’s economy faces serious challenges, the key question is how long the country’s zero-tolerance COVID -19 policy can be sustained, Pinpoint Asset Management chief economist Zhiwei Zhang said in a note.

“Economic activities have been sacrificed to achieve more effective policies against the omicron outbreaks. I expect the outbreaks will be brought under control, with significant economic costs,” the note added.

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