The services sector in China has contracted in August 2021 amid severe restrictions to curb the spread of the Delta variant of the pandemic. Based on data released on September 3, 2021, the Caixin services purchasing managers’ index dropped to 46.7 from 54.9 in July. This index reading came in way below the consensus expectations for a reading of 52.0. it marked the lowest level for the PMI since April last year.
Any reading above 50.0 shows expansion while a reading below shows contraction. The senior economist at Caixin Insight Group, Wang Zhe, stated:
“Service costs were still under great pressure amid elevated labor and transportation costs amid the Covid-19 resurgence. Sluggish market demand limited businesses’ bargaining power, causing prices charged by service providers to slip after a month of growth.”
Freya Beamish, Pantheon Macroeconomics economist, also explained:
“The July reading was taken in a Delta sweet spot, leaving the August PMI with further to fall. We’ve warned that August would be nasty, and consensus looked quite high to us, but downside risks now appear to be materializing. Both the output and new work indices fell below 50, as the authorities reimposed widespread restrictions to stop the spread of the Delta variant.”
Such an effort has been quite successful, for now, which means that the index needs to bounce back massively in the current month, although Q3 seems to be a wipeout.
