The growth of China's service sector carried on in January; however, its pace eased due to a deceleration in new order growth, according to a survey by S&P Global. The Caixin services Purchasing Managers' Index (PMI) surprisingly dipped to 52.7 in January, down from 52.9 in the prior month, whereas it was anticipated to be 53.0. Nevertheless, the sector remained in a state of expansion for the thirteen consecutive month, indicating a continual recovery.
In terms of new businesses, there was another significant increase, powered by robust underlying demand conditions and the acquisition of new clients. While export businesses also ascended, the growth rate slightly decelerated. Employment saw an increase for the second consecutive month as businesses sought to expand their capacities in response to surging sales. Yet, job creation rates remained relatively negligible.
Backlogs of work swelled in January due to the continuous increase in new business, exerting more pressure on operational capacities. Prices saw a marginal increase in January, as per the PMI survey, while service providers reduced their charges for the first time since April 2022.
Despite a dip in optimism which hit a three-month low, business sentiment remained high, bolstered by promising growth projections, increased customers, and planned company expansions. The private sector, including manufacturing and service performances, continued to grow in January. The combined output index was 52.5, slightly down from December's 52.6, while the factory PMI remained steady at 50.8.
Earlier surveys also illustrated that the private sector expanded at a faster rate in January. Manufacturing PMI registered at 49.2, up from 49.0 in December, and non-manufacturing PMI rose to 50.7, a slight increase from the previous month's 50.4.
In response to this, the People's Bank of China announced a 50 basis point cut in the reserve requirement ratio in January to boost confidence in economic recovery. The reduction went into effect on February 5th and is projected to inject about 1 trillion yuan of long-term liquidity. Additionally, the central bank conducted 100 billion yuan worth of 14-day reverse repo operations the following Monday, maintaining the reverse repo rate at 1.95%.
Recently, the International Monetary Fund increased China's growth forecast for this year to 4.6% and kept next year's projection at 4.1%. This adjustment reflects the surge in growth in 2023, surpassing expectations, and the government's increased spending on enhancing protections against natural disasters, according to the IMF.
