Chinese services sector growth slowed to a crawl in June

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Growth across China’s services sector slowed sharply last month with the HSBC-Markit purchasing managers index (PMI) falling to a 5-month low of 51.8.

The reading, well below the 53.5 level of May, was the equal-lowest level since July 2014. It was also significantly below the separate NBS services PMI gauge, conducted by the government, which reported growth accelerated sharply in June.

The slowdown in services activity growth reflected softer new business gains in June, with service providers signalling the slowest increase in new orders in 11 months, according to Markit.

According to Annabel Fiddes, economist at Markit, the reading, combined with the lacklustre manufacturing PMI gauge for June, suggests a further loss of growth momentum in China’s economy.

“In the service sector, business activity, new orders and employment all expanded at slower rates, while optimism towards the business outlook also moderated”.

She also believes the persistent weakness could prompt Chinese policymakers to introduce additional stimulus measures.

“The persistent underperformance of manufacturers combined with a slowdown in the service sector could prompt the authorities to introduce further stimulus measures to ensure growth momentum improves in the second half of the year – and reach the GDP growth target of around 7%.”

Given the economic response to four cut interest rates and three reserve ratio reductions over the past nine months, there’s a valid question as to whether additional stimulus will deliver the required results.

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