Chinese service sector activity grew at a slower-than-expected pace in August, a private survey showed on Tuesday, with slowing overseas demand being the key source of pressure on service providers.
The Caixin China General Services purchasing managers’ index (PMI) rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1, Caixin Insights said in a statement. August was the index’s weakest showing in eight months.
Caixin noted that the weaker reading was driven chiefly by service exporters facing weaker overseas demand, amid deteriorating economic conditions in most of China’s biggest trade partners. Local demand remained relatively strong, helping keep the PMI in expansion territory at above 50.
New export business fell for the first time since December 2022, Caixin said, while cost pressures remained weak, positing a muted outlook for Chinese inflation. The country slipped into deflation in July, with the trend expected to continue in the coming months.
“As market competition was still tight, there was limited room for service companies to raise prices for customers, with the gauge for prices charged recording the lowest level in four months,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.
Weakness in the service sector presents more headwinds for the Chinese economy, especially as recent data showed that manufacturing also remained under pressure from weak overseas demand.
The Chinese economy has been grappling with a sluggish post-COVID economic recovery this year, with Beijing having so far only drip-fed stimulus measures to shore up growth.
The weak PMI reading is likely to result in more calls on Beijing to unlock more stimulus spending, particularly targeted, fiscal measures. But analysts say that Beijing is unlikely to increase fiscal spending, given that government debt levels remain stretched, according to Investing.
Focus this week is also on trade data for August, with exports in particular set to offer more cues on overseas demand for Chinese goods.
