China’s services sector activity expanded at slower pace in December as coronavirus outbreaks tempered recovery

China’s services sector activity expanded at a slower pace in December, a private sector survey showed on Wednesday, as sporadic coronavirus outbreaks tempered the recovery in consumer confidence and weighed on new business growth.

The Caixin/Markit services Purchasing Managers’ Index (PMI) eased to 56.3, a three-month low, in December from 57.8 in November, but remained well above the 50-mark that separates growth from contraction on a monthly basis, pointing to brisk expansion.

A sub-index for new business stood at 54.3, down markedly from 58.7 the previous month, the survey showed. Growth in new export business, which only returned to expansion in November, eased as a surging pandemic restrained overseas demand.

The survey also revealed a further sharp rise in input prices, which led firms to increase their prices charged at the fastest pace since January 2008.

The loss of momentum was largely in line with the findings in an official survey released last week, which showed activity for the catering industry contracted.

The services sector, which had been slower to recover initially than the industrial sector, is more vulnerable to social distancing-restrictions as authorities race to tackle dozens of coronavirus cases in northern China, such as Beijing, Hebei and Liaoning provinces.

Chinese tourists, millions of whom have shunned overseas travel this year because of the global pandemic, are narrowing the scope of their journeys as a result, visiting nearby cities and avoiding trips out of their provinces.

However, Chinese services firms remained optimistic about the year ahead amid hopes of an end to the coronavirus pandemic. Business expectations over the next 12 months shot to the highest since April 2011, the survey showed.

Caixin’s composite manufacturing and services PMI, also released on Wednesday, nudged lower to 55.8 in December, from 57.5 the previous month, also partly due to the drag in manufacturing sector.

“Looking ahead, we expect the post-epidemic economic recovery to continue for several months, and macroeconomic indicators will be stronger over the next six months due to the low bases in the first half of 2020,” said Wang Zhe, senior economist at Caixin Insight Group.

“Meanwhile, we need to pay attention to the mounting pressure on costs brought by the increase in raw material prices and its adverse impact on employment, which is particularly important to figuring out how to exit the stimulus policies implemented during the epidemic.”

Last week, the official non-manufacturing PMI, which measures sentiment in the service and construction sectors, fell to 55.7 in December from 56.4 in November.

Within the non-manufacturing PMI, the subindex for the construction sector rose to 60.7 in December from 60.5 in November, while the service sector business activities index fell to 54.8 from 55.7.