China may service contracts for the third month in a row

China may service contracts for the third month in a row

© Reuters. Staff members are seen in the form of silhouettes in a restaurant, following a ban on dinner services in the midst of a coronavirus outbreak (COVID-19), in the Central Business District (CBD) of Beijing, China, June 2, 2022. REUTERS / Tingshu Wang

BEIJING (Reuters) – Chinese service activities fell for the third month in a row in May, indicating a slow recovery ahead despite easing some quarantine in Shanghai and neighboring cities, a survey of private companies showed on Monday.

The Caixin Purchasing Managers’ Index (PMI) rose to 41.4 in May from 36.2 in April, rising slightly as authorities began lifting some of the austerity restrictions that paralyzed the financial city of Shanghai and upset global supply chains.

However, the reading remained well below the 50-point mark separating growth from contraction on a monthly basis.

Analysts say the weakness in the services sector, which accounts for about 60% of China’s economy and half of urban jobs, is likely to survive under government policy zero COVID-19, with intensive contacting sectors such as hotels and restaurants bearing the brunt.

An official poll Tuesday also showed the service sector is still trapped in the contraction.

Caixina’s research found that new business, including new export orders, fell for the fourth month in a row in May as mobility restrictions kept customers at home and disrupted business.

This has led service companies to reduce their payrolls faster, with the employment sub-index at 48.5, the lowest level since February last year and a drop from 49.3 in the previous month.

Official data shows that the unemployment rate in China, according to the national survey in April, rose to 6.1 percent, the highest since February 2020 and well above the government’s target for 2022 of less than 5.5 percent.

“The employment measure has remained in the contraction area since the beginning of this year. The impact of the epidemic has hit the labor market. Businesses have not been much motivated to increase employment. , a senior economist at Caixin Insight Group.

China’s economic activity cooled sharply in April, as the country battled the worst COVID-19 epidemic since 2020.

To stabilize the situation in a politically sensitive year, China’s cabinet recently announced a package of 33 measures covering fiscal, financial, investment and industrial policies, although analysts say the official GDP target of around 5.5% will be difficult to achieve without mitigation. zero- COVID strategy.

“It is essential that policymakers pay more attention to employment and logistics. Removing barriers in supply chains and industrial chains and promoting labor recovery and production will help stabilize market players and protect the labor market,” said Wang of Caixin Insight Group. should distribute subsidies to people whose income has been affected by COVID.

Caixin’s composite PMI for May, which includes both manufacturing and service activity, rose to 42.2 from 37.2 in the previous month. Factory activity declined less sharply in May, but the second largest decline since February 2020 was still recorded, indicating that the recovery remains fragile.

Caixin PMI is compiled by S&P Global 🙂 (NYSE 🙂 based on responses to questionnaires sent to procurement managers in China.

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