China's services sector activity squeezed by surge in Omicron cases

BEIJING (Reuters) - Activity in China's services sector contracted at the steepest pace in two years in March as the local surge in coronavirus cases restricted mobility and weighed on client demand, a private sector survey showed on Wednesday.

The Caixin services Purchasing Managers' Index (PMI) dived to 42.0 in March from 50.2 in February, dropping below the 50-point mark that separates growth from contraction on a monthly basis. The reading indicates the sharpest activity decline since the initial onset of the pandemic in February 2020.

The survey, which focuses more on small firms in coastal regions, tallied with the gauge of an official survey, which also showed the deterioration in the services sector.

Analysts say contact-intensive services sectors such as transportation, hotel and catering were hurt the most, clouding the outlook for a much anticipated rebound in consumption this year.

A sub-index for new business reported a second consecutive monthly fall, with the declining pace accelerating to the fastest since March 2020. Firms' input prices expanded in March after easing to a six-month low in February.

The virus outbreaks and softer demand reduced firms' appetite for additional staff, leading to a decline in an employment sub-index.

While firms remained generally upbeat about output over the next year, optimism slipped to a 19-month low amid concerns over the pandemic and the economic fallout from the Ukraine war.

Caixin's March composite PMI, which includes both manufacturing and services activity, slumped to 43.9 from 50.1 in the previous month, signalling the quickest reduction since the height of the country's COVID-19 outbreak in 2020.

"Overall, both manufacturing and services activities weakened in March due to the epidemic. Similar to previous COVID outbreaks in China, the services sector was more significantly affected than manufacturing," said Wang Zhe, Senior Economist at Caixin Insight Group, in a statement accompanying the data release.

"Policymakers should look out for vulnerable groups and enhance support for key industries and small and micro businesses to stabilise market expectations."

The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

 

(Reporting by Ellen Zhang, Stella Qiu and Ryan Woo; Editing by Sam Holmes)