China’s services sector expanded at the quickest pace in a year in June amid easing Covid lockdowns, the Caixin services purchasing managers’ index (PMI) showed.
The index rose to 54.5 in June, signalling the fastest growth since July last year and the first expansion since February. That compared with 41.4 in May.
The 50-point mark separates growth from contraction on a monthly basis.
While activity has accelerated since various Covid lockdowns were rolled back, the economy still faces headwinds, including a subdued property market, soft consumer spending and fear of impacts from recurring waves of infections.
An official survey on Thursday also showed the services industry staged the fastest rebound in 13 months, with sectors that were hard hit by Covid curbs such as retail and road transport catching up with previously depressed demand.
Export Orders Soften
A sub-index for new business jumped to 52.4 – the highest this year – from 44.8 in the previous month while the drop in export orders also softened, the Caixin survey showed. Price pressures also eased, with input prices remaining largely unchanged from the previous month.
However, employment continued to decline in June for the sixth straight month, with services firms linking it to cost-cutting initiatives and resignations amid Covid.
“Overall, regional Covid outbreaks were put under control and restrictions were loosened in June, facilitating a gradual recovery in business operations,” Wang Zhe, a senior economist at Caixin Insight Group, said.
“Deteriorating household income and expectations caused by a weak labour market dampened the demand recovery. Correspondingly, supportive policies should target employees, gig workers and low-income groups impacted by the outbreaks.”
Analysts expect further improvement in economic conditions in the third quarter, although the official GDP target of around 5.5% for this year will be hard to achieve unless the government abandons its zero-Covid strategy.
Caixin’s June composite PMI, which includes both manufacturing and services activity, rose to 55.3 from 42.2 the previous month.
The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.
- Reuters with additional editing by Jim Pollard