Daily Management Review

Omicron Surge In China Leaves Negative Impact On Its Services Sector Activity: Caixin PMI.


Omicron Surge In China Leaves Negative Impact On Its Services Sector Activity:  Caixin PMI.
According to a private sector survey released on Wednesday, activity in China's services industry dropped at the fastest rate in two years in March, as a surge in coronavirus cases hindered mobility and weighed on demand.
In March, the Caixin services Purchasing Managers' Index (PMI) fell to 42.0 from 50.2 in February, falling below the 50-point threshold that distinguishes monthly expansion from contraction. The reading represents the biggest drop in activity since the Covid-19 epidemic began in February 2020.
The survey, which focuses on small businesses in coastal areas, coincided with an official survey that revealed a decline in the services sector.
According to analysts, contact-intensive services sectors including transportation, hotels, and catering were the hardest hit, clouding the outlook for a much-anticipated consumer resurgence this year.
For the second month in a row, a sub-index for new business decreased at the fastest rate since March 2020.
Input prices for businesses increased in March after falling to a six-month low in February.
Virus outbreaks and weaker demand stifled employers' desire to hire more people, with the employment sub-index continuing to decrease, albeit at a slower pace.
While businesses remain optimistic about output in the coming year, optimism has dropped to a 19-month low due to fears of a pandemic and the economic consequences of the Ukraine conflict.
Caixin's composite PMI for March, which covers both manufacturing and services activity, fell to 43.9 from 50.1 the previous month, the quickest drop since the country's Covid-19 epidemic 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."
In a note, Zhiwei Zhang, chief economist at Pinpoint Asset Management, stated that while China's economy faces major challenges, the big question is how long the country's "zero tolerance" Covid policy can be continued.
"Economic activities have been sacrificed to achieve more effective policies against the Omicron outbreaks. I expect the outbreaks will be brought under control, with significant economic costs," Zhang said.
S&P Global compiles the Caixin PMI using replies to questionnaires submitted to purchasing managers in China.