Tags: China | Growth | Economic | Fears

China's Modest Services Growth Adds to Economic Fears

Wednesday, 05 Jun 2013 09:49 AM

Activity in China's services sector expanded in May but at a pace little changed from the month before, the latest sign that the world's No. 2 economy is struggling to regain momentum.

The HSBC/Markit Purchasing Managers' Index (PMI) for the services industry, released on Wednesday, inched up to 51.2 last month after seasonal adjustment, the second-lowest reading since August 2011. It had registered 51.1 in April.

The services sector accounted for 46 percent of China's gross domestic product in 2012, and the weak growth seen in the survey adds to concerns raised by earlier PMI surveys on the manufacturing sector over the loss of momentum in China.

"A soft patch in manufacturing growth continues to weigh on this industry and adds more downside risks to China's growth rate in 2Q," said HSBC's China chief economist, Qu Hongbin.

Earlier this week, China's official services PMI slipped to 54.3 in May from 54.5 in April, and while the official manufacturing PMI ticked up to 50.8 in May from 50.6, the HSBC/Markit manufacturing PMI dropped to 49.2, the lowest level since October 2012 and down from 50.4 in April.

A reading above 50 indicates expansion of business and one below 50 implies contraction.

Attention now turns to exports, industrial output and retail sales data for May due later this week, with expectations that these will also confirm the weakness in the economy.

"We are not so optimistic on economic growth in the second quarter. We expect GDP growth will slow to 7.6 percent in Q2," said Shen Lan, economist at Standard Chartered in Shanghai.

"China's economy is facing pressures of destocking while it still takes time for the credit growth to feed into firms' investment. We think the recovery will be more obvious in the second half of the year," Shen said.

China's annual economic growth slowed to 7.7 percent in the first quarter from 7.9 percent in the previous quarter. The full-year annual growth of 7.8 percent in 2012 was the weakest since 1999.

The IMF and OECD last week cut their forecasts for 2013 economic growth to 7.75 percent and 7.8 percent, respectively, bringing them into line with recent revisions by private institutions, including Bank of America-Merrill Lynch, which pared its forecast this month to 7.6 percent from 8 percent.

Standard Chartered has cut its estimate to 7.7 percent from 8.3 percent.

The HSBC/Markit services survey found the sub-index measuring new business orders fell to 51.4 in May, the lowest since August 2011, and down from 51.5 in April.

About 12 percent of respondents reported higher volumes of new orders, but over 81 percent noted no improvement in May versus April.

Input prices for Chinese service providers rose at the slowest pace in 43 months and their service charges fell for the first time in four months due to market competition.

A bright note in May was an improvement in the sub-index measuring employment, with the reading back above 50 from April's 49.6, which had been the first net reduction in staff numbers since January 2009.

Nearly 25 percent of respondents anticipate activity to expand over the next year, while just over 3 percent expect it to contract.

© 2017 Thomson/Reuters. All rights reserved.

   
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Activity in China's services sector expanded in May but at a pace little changed from the month before, the latest sign that the world's No. 2 economy is struggling to regain momentum.
China,Growth,Economic,Fears
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2013-49-05
Wednesday, 05 Jun 2013 09:49 AM
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