China’s services activity shrank in December as surging COVID infections hit demand, a private-sector survey showed on Thursday, although the pace of recent declines slowed while business confidence rose to a 17-month high.
The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 48.0 in December from 46.7 in November, but remained below the 50-point mark, which indicates contraction in activity, for a fourth straight month.
China abruptly removed its stringent zero-COVID strategy in early December after rare public protests over the protracted curbs, triggering a surge COVID infections across the country.
The hit to business caused by the new spread of the virus extends the pain to the services sector from the country’s stringent COVID curbs, which were lifted in early December, and reflects a similar trend seen in a larger official services PMI published last week.
Companies in the Caixin/S&P survey reported the falls in output and new work for the fourth straight month in December, and external demand fell into contraction from growth the previous month.
However, surveyed firms were nonetheless bullish about recovery prospects for the next 12 months thanks to the lifting of COVID restrictions that could lead to increased consumption, with the confidence index rising to a 17-month high.
In December, companies also continued to cut staff and raise their prices, while input cost inflation softened.
Chinese leaders have pledged to focus on stabilising the economy in 2023 and step up policy adjustments to cushion the impact from a surge in COVID infections at a time when a weakening global economy is hurting exports.
“This requires not only elevated social expectations and confidence in development, but various policies to work in tandem in stabilising the job market and effectively increasing the disposable income of residents,” said Wang Zhe, senior economist at Caixin Insight Group.
Caixin/S&P’s composite PMI, which includes both manufacturing and services activity, rose to 48.3 in December from 47.0 in the previous month, remaining in contractionary territory for the fourth straight month.
The Caixin PMI is compiled by S&P Global based on responses to questions sent to purchasing managers in China.
(Reporting by Liangping Gao and Ryan Woo; Editing by Sam Holmes)
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