China services growth slows unexpectedly
By Sean Farrell
Date: Wednesday 05 Aug 2020
(Sharecast News) - Growth in China's services sector slowed to a three-month low in July as new exports declined and job cuts continued, an industry survey showed.
The Caixin/Markit purchasing managers' index for services fell to 54.1 from June's 10-year high of 58.4. July's survey undershot market expectations for a reading of 58. A score of 50 separates growth from contraction.
The survey showed new services export business contracted in July after expanding in June, partly offsetting domestic growth. Businesses laid off workers for the sixth month running as they faced the twin pressures of rising costs and falling prices.
Wang Zhe, senior economist at Caixin Insight, said: "Both the supply of, and demand for, services grew, but weak external demand was a drag. Unlike the previous month, the gauge for new export business dropped sharply into contractionary territory as the pandemic continued to hit other nations hard, dragging down overseas demand.
"Employment was still a key problem. The combination of expanding demand and production with shrinking employment has dogged the economy for several months. In hard times, enterprises look to shore up profits by cutting costs, like labour."
Services, which make up about 60% of China's economy, was slow to recover from the Covid-19 shutdown but the sector had begun to pick up as restrictions on public gatherings were eased. Fear of unemployment, pay reductions and renewed outbreaks of coronavirus have dented consumer confidence again, contributing to the disappointing result for July.
Zhe said business confidence picked up further despite July's setback and that the outlook was the strongest since March 2015. The government has announced a range of measures to support businesses.
"Service providers generally believed that the toughest times had passed, and were optimistic about their prospects over the next 12 months as economic activity edges closer back to normality," Zhe said.
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