China's services activity contracts at fastest pace in 2 years, private survey shows

BEIJING Reuters - Activity in China's services sector contracted at the steepest pace in two years in March as the surge in coronavirus cases restricted mobility and weighed on client demand, a private sector survey showed on Wednesday.

The PMI of Caixin services went to 42.0 in March from 50.2 in February, dropping below the 50 point mark that separates growth from contraction on a monthly basis. The activity decline has been seen since the onset of the Pandemic in February 2020.

The survey, which focuses more on small firms in coastal regions, shows the deterioration in the services sector, as well as the gauge of an official survey.

Contact-intensive services sectors such as transportation, hotel and catering were hurt the most, clouding the outlook for a much anticipated rebound in consumption this year, according to analysts.

A new business sub-index reported a second consecutive month of fall, with the declining pace accelerating to the fastest since March 2020. In March firms' input prices increased after easing to a six month low in February.

The decline in an employment sub-index was caused by the outbreaks of the virus and softer demand.

Over the next year, optimism slipped to a 19 month low, despite concerns over the Ukraine war and the economic fallout from the pandemic.

Caixin's March composite PMI, which includes both manufacturing and services activity, fell to 43.9 from 50.1 in the previous month, signalling the quickest reduction since the height of the country's COVID 19 outbreak in 2020.

Manufacturing and services activities weakened in March due to the epidemic. In a statement accompanying the data release, the services sector was more affected than manufacturing, according to Wang Zhe, Senior Economist at Caixin Insight Group.

Policymakers should look out for vulnerable groups and increase support for key industries and small and micro businesses to improve market expectations. A Caixin PMI was compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.