BEIJING (REUTERS) – Activity in China’s service sector contracted at the fastest pace in two years in March as a rise in coronavirus cases curtailed mobility and weighed on demand, it revealed. a private sector survey on Wednesday 6 April.
The Caixin Services Purchasing Managers’ Index (PMI) dipped to 42 in March from 50.2 in February, falling below the 50-point mark that separates growth from contraction on a monthly basis. The reading points to the steepest drop in activity since the initial start of the Covid-19 pandemic in February 2020.
The survey, which focuses more on small businesses in coastal regions, coincided with an official survey, which also showed deterioration in the service sector.
Analysts say contact-intensive service sectors such as transport, hotels and restaurants have been hardest hit, darkening prospects for a much-anticipated rebound in consumption this year.
A new business sub-index fell for a second month in a row, and at the fastest pace since March 2020.
Business input prices rose last month after hitting a six-month low in February.
Virus outbreaks and falling demand have reduced companies’ appetite for additional staff, with the employment sub-index showing a continued contraction in activity, albeit at a slower pace.
While companies remained generally optimistic about output over the next year, optimism fell to a 19-month low due to concerns over the pandemic and the economic fallout from war in Ukraine.
Caixin’s March composite PMI, which includes both manufacturing and services, fell to 43.9 from 50.1 the previous month, signaling the fastest reduction since the peak of the Covid outbreak. -19 in the country in 2020.
“Overall, manufacturing and services activities weakened in March due to the outbreak. As in previous Covid-19 outbreaks in China, the services sector was more significantly affected than the manufacturing industry. “said Wang Zhe, senior economist of Caixin Insight Group.
“Policymakers should seek out vulnerable groups and build support for key industries and small and micro enterprises to stabilize market expectations.”
Pinpoint Asset Management chief economist Zhang Zhiwei said in a note that as China’s economy faces serious challenges, the big question is how long the Covid-19 policy of “tolerance zero” of the country can be maintained.
“Economic activities have been sacrificed to achieve more effective policies against Omicron outbreaks. I expect outbreaks to be brought under control, with significant economic costs,” Zhang said.
The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.