China's services growth hits 5-month low, signalling weakening economy
What's the story
China's services sector has witnessed its slowest growth in five months, according to a private survey released on Wednesday. The RatingDog China General Services PMI, compiled by S&P Global, fell to 52.1 in November from October's 52.6. This marks the weakest expansion since June this year. Any reading above the neutral mark of 50 indicates an expansion in activity within the sector.
Survey findings
PMI survey reveals contraction in services activity
The official PMI survey also revealed a contraction in services activity last month, the first such instance since COVID-19 lockdowns in 2022. The slowdown was attributed to a decline in real estate and residential services sectors after the post-holiday boost from October's extended national holiday period faded. Until now, these sectors had been the bright spots of China's consumer market, which is otherwise marred by deflation and low confidence levels.
Policy response
Government initiatives to boost household spending
In response to the slowdown, provincial authorities are ramping up efforts to boost household spending. These include measures like giving children fall holidays to encourage parents to spend on travel. The government sees untapped potential in sectors like travel and entertainment, as services-related expenditure in China only accounts for 21% of GDP—much lower than over 40% in the US, according to estimates by Australia & New Zealand Banking Group.
Sector dynamics
Services sector's performance and employment trends
The services sector's performance could determine the fate of consumer spending in the coming months, especially as falling housing prices and a weak job market dampen demand. Employment in this sector has contracted for four consecutive months now, leading to an increase in unfinished work after a decline last month. Average input costs continued to rise but at a slower pace due to raw material, office supplies, and fuel expenses.