China’s services sector activity shrinks to 6-month low as Covid-19 takes ‘heavy toll on economy’
- Caixin services purchasing managers’ index (PMI) fell to 46.7 in November from 48.4 in October
- Last week, the official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 46.7 in November from 48.7 in October
China’s services activity shrank to a six-month low in November as widening coronavirus containment measures weighed on demand and operations, a private-sector business survey showed on Monday, pointing to a further hit to economic growth.
New virus infections hit record highs in November. Analysts at Nomura estimated that areas in lockdowns accounted for about a quarter of China’s gross domestic product by the end of the month, choking domestic consumption, disrupting supply chains, and even stoking rare street protests across many cities.
“Since October, the impact of Covid outbreaks has taken a heavy toll on the economy, and the challenge of how to balance Covid controls and economic growth has once again become a core issue,” said Wang Zhe, senior economist at Caixin Insight Group.
“The market is in urgent need of policies to promote employment and stabilise domestic demand. Beijing should further coordinate fiscal and monetary policies to expand domestic demand and boost incomes of the poorer parts of the population.”
An easing of antivirus curbs in some Chinese cities in the last few days has been met with a mix of relief and worry, as hundreds of millions await an expected shift in policies after widespread social unrest.
Most analysts believe the road to an eventual reopening will be long and bumpy, and warn a further surge in infections this winter could see measures tightened again.
Companies in the Caixin/S&P survey reported the strongest falls in output and new work for six months, and continued to cut staff as confidence in the outlook for the next 12 months fell to an eight-month low.
The rate of job losses was the quickest seen since the survey began in November 2005, pointing to further strains on the labour market.
One bright spot was that export business returned to growth from contraction in October, partly due to the relaxation of international travel rules.
Companies also continued to raise their prices, while input cost inflation softened.
Beijing has softened its stance on the stringent virus measures after widespread protests with some eases in virus policies on testing requirements and quarantine rules in a marked shift in several places in Chinese cities.
As hopes for China’s reopening are growing, economists and analysts say Beijing could abandon its zero-Covid approach as early as after the annual parliamentary meeting in March, but the reopening road will be bumpy in the short term.
Caixin/S&P’s composite PMI, which includes both manufacturing and services activity, fell to 47 in November from 48.3 the previous month, driven by falls in both manufacturing and service sector output.
The Caixin PMI is compiled by S&P Global from responses to questions sent to purchasing managers in China.