China's service sector continued to expand in August, although the rate of expansion has slowed since July due to a reduction in new business inflows, as indicated by a monthly survey conducted by S&P Global on Wednesday.
The headline Caixin Services Purchasing Managers' Index registered at 51.6 in August, a slight drop from 52.1 in July and below economists' forecast of 51.9. Despite this decline, the index has remained above the neutral threshold of 50.0 for 20 consecutive months. However, the growth rate was among the lowest observed so far this year.
The growth in services activity was bolstered by an increase in new business inflows. Survey respondents attributed the rise in new orders to improved underlying demand conditions and an expansion in service offerings. Nevertheless, the pace of new work inflows was slower compared to July.
In contrast, export business experienced accelerated growth due to a rise in interest from overseas clients.
While there was a renewed accumulation of unfinished business, employment in the sector declined in August after rising in July, with job losses attributed to both resignations and redundancies.
Inflationary pressures intensified, with cost inflation accelerating to its highest level since June 2023, driven by rising costs for input materials, labor, and transportation. Meanwhile, selling prices decreased for the first time in seven months, with the rate of decline in output prices being the most pronounced since April 2022.
Service providers remained optimistic in August, with sentiment improving for the second consecutive month to the highest level since May.
The overall private sector also continued to expand for the 10th consecutive month in August. The composite output index remained steady at 51.2, with faster growth in manufacturing output counterbalanced by slower expansion in service activities.
"Considering the government's ambitious annual economic growth target, the challenges and difficulties in stabilizing growth over the coming months will be substantial," noted Wang Zhe, Senior Economist at Caixin Insight Group.
Wang highlighted ongoing issues such as insufficient domestic demand, significant uncertainties in external demand, and weak market optimism. The economist suggested there is still scope for adjustments in fiscal and monetary policy.
