China's Caixin Services PMI Reveals Steady Growth
- The services sector expands
for the 16th month, supported by increased new business and export orders.
- Input costs rise while the labor market remains in contraction, highlighting the need for further stimulus measures to support economic recovery.
Services PMI Dips Slightly but New Business Soars
In April 2024, China's services sector continued to expand, marking the 16th consecutive month of growth, despite a slight deceleration in the pace of expansion. The Caixin/S&P Global services purchasing managers' index (PMI) dropped marginally to 52.5 from 52.7 in March, indicating that the sector is still in expansionary territory. This figure aligns with market expectations, reflecting a consistent performance in the services sector.
The services sector's growth was supported by a significant increase in new business, which reached its highest level since May of the previous year. This uptick in new orders was propelled by better overseas demand and a boost in tourism activity, which also led to the fastest growth in new export orders in ten months. Business sentiment among service providers also improved, reaching the highest level of confidence for the year ahead.
Caixin/S&P Composite PMI Rises to 52.8 in April
Despite the positive signs in new business and export orders, companies in the services sector continued to face cost pressures. Input prices for materials, labor, and energy rose, although the increase remained below the long-term average for the survey.
The broader economic picture for China includes Caixin/S&P's composite PMI, which encompasses both the services and manufacturing sectors. This composite index saw a slight increase to 52.8 in April from 52.7 in March, marking the fastest pace since May 2023. This composite measure suggests that the overall economy is experiencing modest growth.
China in Need of a Greater Stimulus Measures
The Chinese economy has faced challenges in achieving a strong post-COVID revival. While the first quarter GDP report showed pockets of strength, suggesting the potential for a steady recovery throughout the year, a full-fledged economic resurgence is still considered to be some distance away. Economists generally agree that China's structural reform efforts need to be complemented by greater stimulus measures to encourage a stronger and more sustainable economic recovery
The Caixin PMI, which is particularly focused on small and medium-sized enterprises (SMEs), is considered a reliable indicator of the performance of China's private sector. The index is based on a survey of purchasing managers from various service industries and is highly valued for its ability to reveal month-to-month changes and trends.
While the slight dip in the Caixin Services PMI for April suggests a moderation in the sector's growth, the continued expansion, coupled with the highest new business in nearly a year and improved business confidence, offers a cautiously optimistic outlook for China's services sector and its contribution to the broader economy.