China’s services sector contracts to its worst since the global financial crisis in 2008

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Mar 8, 2020
Updated: Mar 11, 2020
  • China’s services sector contracts to its worst since the global financial crisis in 2008.
  • Caixin services PMI drops 50% in February to 26.5 versus 51.8 in January.
  • Business activity almost came to a halt in February in China amidst the Coronavirus crisis.

Caixin’s economic data on Wednesday showed that February marked the worst month in history for China’s services sector. New orders, as per the data, recorded the worst reading since 2008’s global financial crisis. Following the data, economists reiterated the need for swift support in order for China to protect its economy against mass bankruptcies.

The Caixin/Markit services purchasing managers’ index (PMI) dropped around 50% in February to 26.5. In January, Caixin had announced the services PMI at 51.8. A reading below 50 marked contraction in China’s services sector last month that was branded its first since 2005 when the survey was first taken.

Business Activity In China Almost Came To A Halt In February

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Economists also construed the sharp decline in the services sector as a call for immediate action to protect the economy at large against the broader impact of the Coronavirus. Business activity in China almost came to a halt in February amidst travel restrictions and movie theaters, malls, restaurants, and a wide range of other businesses keeping closed in an attempt to contain the spread of the virus.

Macroeconomic analysis director, Zhengsheng Zhong of CEBM Group commented on Wednesday’s data:

“Stagnating consumption amid the coronavirus epidemic has had a great impact on the service sector.”

Caixin’s survey primarily focuses on small companies that rely heavily on exports. The data, however, echoed a sharp decline in economic activity in the services sector that was revealed in the official figures last week.

Wednesday’s data also highlighted the need for China to adopt robust measures that can support its services sector to offset the slowdown that has been persistent in its manufacturing sector. A strong services sector is also likely to even out the loss of investments and create new positions for workers that are let go in the name of job cuts in other sectors.

Nomura Analysts Expect A Massive Hit To The Q1 Economic Performance

While President Xi Jinping continues to express confidence that China will hit its 2020’s economic targets (unspecified), Nomura analysts expect the first-quarter economic performance to take a massive hit due to the Coronavirus complications.

Reports of new confirmed cases of the Coronavirus in China have recently started to decline. The number, however, is rising sharply across the globe.

The USD/CNY currency pair dropped sharply last week in the forex market from a high of 6.9915 to a weekly low of 6.9260. The pair closed the last week at 6.9311 on Friday.

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