According to a recent private sector survey, China’s services sector expansion experienced a slight slowdown due to rising costs. However, there was a notable increase in new orders and business sentiment, offering optimism for a continued economic recovery.
The Caixin/S&P Global services Purchasing Managers’ Index (PMI) dipped to 52.5 from March’s 52.7, marking the 16th consecutive month of expansion. This index uses the 50-mark to distinguish between expansion and contraction.
Despite the challenges, including a prolonged property downturn and subdued domestic demand, China’s economy exceeded expectations in the first quarter. Wang Zhe, Senior Economist at Caixin Insight Group, noted that the robust start to the year aligns with the sustained expansion seen in both manufacturing and services PMIs.
Notably, new business activity reached its highest level since May of the previous year. Stronger overseas demand and growth in tourism contributed to the fastest pace of new export orders in ten months. Consequently, business confidence among Chinese service providers for the next 12 months rose to its highest level this year.
However, companies faced continued cost pressures, particularly in materials, labor, and energy. While they raised prices for their goods and services, they remained cautious about filling vacancies left by departing employees.
Wang emphasized the importance of effectively implementing existing policies to maintain economic momentum and improve overall market expectations.
It’s worth noting that the Caixin survey, which leans towards smaller, export-oriented firms, showed a different trend compared to the broader official PMI, which indicated a significant slowdown in services sector activity.
The composite PMI, which tracks both services and manufacturing, rose to 52.8 last month, the fastest pace since May 2023.
Despite some signs of strength in the first quarter GDP report, China’s economic recovery faces challenges, particularly stemming from the ongoing property sector crisis. While there’s hope for a steady recovery, economists generally agree that a robust revival is still some way off.
To foster a stronger and sustainable economic recovery, investors and analysts suggest that China’s structural reform efforts should be accompanied by increased stimulus measures.
