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China’s services sector activity squeezed by Omicron surge

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© Reuters. FILE PHOTO – People eat at a Beijing restaurant on October 25, 2020. REUTERS/Tingshu Wang

BEIJING (Reuters – China’s services sector experienced its slowest growth in 2 years, according to a survey by the private sector. The local coronavirus surge slowed mobility and weighed down client demand.

Caixin’s services purchasing managers’ index (PMI), fell below 50 points in March, from 50.2 in February. This marks the lowest point that distinguishes between growth and contraction monthly. This reading is the highest activity drop since February 2020, when the pandemic began.

This survey, which is more focused on coastal firms, was compared with an official survey that also revealed the decline in services.

Analysts believe that the worst hit sectors were those involved in contact services such as catering and hotel, which could cloud the prospects for an anticipated recovery in consumer spending.

Sub-indexes for new businesses reported another consecutive month of decline, and the decreasing pace has accelerated to the fastest rate since March 2020. After a dip to six months in February, firms’ input prices increased in March.

Softer demand and virus epidemics reduced the firms’ desire to hire additional workers, which led to a decrease in an employment subindex.

Although companies were optimistic about future output, optimism dropped to a 19 month low as a result of concerns regarding the Ukraine conflict and the potential pandemic.

Caixin’s composite March PMI (which includes manufacturing activity as well as services activity) fell to 43.9 in March from 50.1 the month before. This is the fastest decline since 2020’s COVID-19 epidemic.

In March, the epidemic affected both manufacturing and service activities. According to Wang Zhe of Caixin, Senior Economist with Caixin Intelligence Group, “The services sector suffered more than the manufacturing sector in the recent COVID epidemics in China,” in a statement that was released along the data release.

For market stability, policymakers need to look out and support vulnerable groups.

The Caixin PMI is compiled by S&P Global (NYSE:) from responses to questionnaires sent to purchasing managers in China.

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