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June China’s service activity growth falls to its 14-month low: Caixin PMI

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BEIJING – Growth in China’s service sector slowed dramatically in June to a 14-month low, weighed down by a resurgence of COVID-19 cases in southern China, a private survey showed Monday, adding to to concerns that the world’s second-largest economy may be starting to lose some momentum.

The Caixin / Markit Services Purchasing Managers Index (PMI) fell to 50.3 in June, the lowest since April 2020 and significantly below 55.1 in May. It remained just above the 50 mark, which separates growth from contraction on a monthly basis.

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China’s official services indicator had also shown a marked slowdown in June, although it held up well in expansion territory. The private survey is believed to focus more on smaller companies.

Coupled with a slowdown in the manufacturing sector, analysts say the PMI survey findings suggest that suppressed demand for COVID may have peaked and China’s robust economic rebound from the crisis is beginning to moderate.

Although the recovery from the pandemic was slower than manufacturing, a gradual improvement in consumption in recent months had boosted China’s service sector.

However, a COVID-19 outbreak of the most infectious Delta strain at the Guangdong export and manufacturing hub since late May and the subsequent imposition of anti-virus measures have weighed on business and consumer activity.

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While the government reacted quickly to contain the new wave of cases and economic shocks are easing, the private survey showed that the business outlook for service providers for the coming year fell to the lowest level in nine months.

A new business sub-index stood at 50.5, also the lowest since April 2020, when the service sector was still mired in COVID paralysis. Companies also cut staff in June for the first time in four months, as a result of slowing demand.

A positive point of the survey was a marked relaxation of inflationary pressures, which have reduced profit margins. Input costs have risen at the slowest pace since September 2020, and service companies cut their prices charged for the first time in 11 months to win new business.

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Caixin’s June composite PMI, which includes manufacturing and services activity, fell to a 14-month low of 50.6 from 53.8 in May.

“The manufacturing industry has returned to normal in the wake of the epidemic, while the service industry remains sensitive to regional revivals,” said Wang Zhe, senior economist at Caixin Insight Group.

Furthermore, last year’s low base effect will continue to weaken in the second half of this year. Inflationary pressure, intertwined with the economic slowdown, will continue to be a serious challenge. “

(Reporting by Stella Qiu and Ryan Woo; Edited by Kim Coghill)

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