China’s Services Activity Contracts Sharply After Delta Outbreak

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China’s services activity contracted for the first time since April last year, a private gauge showed, further evidence of the blow to the economy that’s come from fresh virus outbreaks. 

The Caixin China Services Purchasing Managers Index plunged to 46.7 in August from 54.9 in July, missing the median estimate of 52. The 50-level separates expansion in activity from contraction. 

The government imposed stringent restrictions on travel during the peak summer holiday period to contain an outbreak of virus cases linked to the fast-spreading delta variant in some parts of the country in August. The hit to consumer spending and services, as well as a slowdown in manufacturing, have led several economists to downgrade their growth forecasts for the year and predict more central bank support in coming months.

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The findings from the Caixin survey are in line with China’s official non-manufacturing PMI released earlier this week, which fell to 47.5 from July’s 53.3. The official survey tracks larger companies and includes the construction sector, while the Caixin survey focuses more on smaller businesses.

The gauges for business activity and total new business plummeted into contractionary territory for the first time in 16 months, with supply falling at a steeper pace than demand, according to the Caixin survey.

The data reflects “disruptions caused by the Covid-19 flare-ups that appeared in parts of China starting in late July,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the data. But “businesses remained optimistic,” Wang said, with surveyed firms hoping that the outbreaks could be contained quickly.

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With assistance from Bloomberg