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China economy

China service sector growth slows to 13-month low

  • Service sector growth slowed sharply in October, confirming the US trade war is hitting the Chinese economy hard, and sooner than most expected
PUBLISHED : Monday, 05 November, 2018, 12:16pm
UPDATED : Monday, 05 November, 2018, 12:16pm

The Chinese service sector continued to grow in October, but at a much slower pace than in the previous month, hitting a 13-month low, data from financial news outlet Caixin showed.

The services purchasing managers’ index (PMI), compiled by Markit and published by Caixin, fell to 50.8 in October, well below the 52.8 level forecast by analysts in a Bloomberg survey and the September reading of 53.1.

The index level of 50 is the dividing point between expansion and contraction in the sector.

The new figure for the first month of the fourth quarter is further evidence that the trade war with the United States is having a major negative effect on Chinese growth, and the deterioration is happening faster than most observers and the Chinese government previously expected.

The Caixin result follows the official PMI data released on Wednesday that showed manufacturing sentiment posted a larger-than-expected drop to 50.2 in October from 50.8 in September – meaning factory activity continued to expand but at a much slower pace.

Chinese manufacturing activity little changed at very low level in October, Caixin PMI data show

The composite Caixin PMI, which combines results for the manufacturing and services sectors, fell sharply in October to a 28-month low of 50.5, down from 52.1 in September.

The result indicates “mounting downward pressure on China’s economy,” according to Dr Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, in the Caixin report.

“The sub-index for new orders fell, pointing to softening overall demand conditions,” he noted. “The sub-index for future output edged down, reflecting weakening confidence among companies.”

The data comes after the Chinese government signalled last Wednesday that it would enact new measures to combat “growing downward pressure” on the economy.