China's services growth slows to 10-month low
What's the story
China's services sector growth has slowed down to its lowest pace in nearly a year, with the Purchasing Managers' Index (PMI) falling sharply from 54.1 in June to 50.4 in July. The decline is mainly due to weaker domestic demand impacting new business expansion. Despite the slowdown, the PMI reading remained above the crucial 50-mark that separates expansion from contraction, indicating that while growth has slowed, it hasn't yet turned negative.
Market conditions
Weaker domestic demand impacts new business expansion
The private survey revealed that new business growth has slowed down to its weakest pace since March, reflecting weaker demand conditions in China's domestic market.
The services sector, a key focus for policymakers looking to shift growth away from exports and manufacturing, has been hampered by subdued household spending and cautious consumer behavior.
The weaker PMI data from the private survey contrasts with the official services PMI released earlier, which showed activity slipping into contractionary territory.
Export growth
Continued growth in services exports
Despite the slowdown in overall activity, China's services exports have continued to grow for the third consecutive month.
Survey respondents attributed this growth to stronger overseas demand, increased activity around exhibitions and summer study tours, higher financial transaction settlements, and improved business management practices.
The continued improvement in external services demand has provided some relief for companies facing softer domestic conditions amid economic challenges.
Employment trends
Job creation continues but at slower pace
Chinese services firms continued to add employees in July, marking the third straight month of job creation. However, the pace of hiring has slowed compared to June.
Business confidence among service providers remained positive but weakened to its lowest level since February 2020.
This decline reflects concerns over future demand and broader economic uncertainty despite signs of stabilization in some sectors.
Economic indicators
Broader private-sector recovery lost momentum
The Composite Output Index, which combines manufacturing and services activity, fell to 50.8 in July from 53.6 in June.
This data suggests that China's broader private-sector recovery lost momentum at the start of the third quarter, with both manufacturers and service providers facing headwinds.
The economy has been under pressure from weak domestic consumption, falling property investment, and trade uncertainties.