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China’s Services Sector Shrank at Record Pace, but Analysts See Rebound in March

James Hyerczyk

China’s services sector activity shrank at a record pace in February, official data showed on Saturday. The official non-manufacturing PMI fell to 29.6, from 54.1 in January, the National Bureau of Statistics said. The 50-point mark separates growth from contraction on a monthly basis. Analysts were looking for a reading of 51.4.

Earlier, China reported that its factory activity contracted at the fastest pace on record in February. China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January. Analysts expected the February PMI to come in at 46.0.

Beijing Disappointed by Report

Beijing had been counting on a strong services sector to help offset prolonged weakness in manufacturing, which has been weighed by weak domestic and global demand and the protracted U.S.-China trade war.

But analysts estimate the sector could take a more severe hit form the outbreak of the new coronavirus, as shops, restaurants and movie theatres see a slump in sales due to quarantine measures and travel restrictions.

Service Sector Plunge to Weigh on GDP

China’s economy has transitioned more towards services since the SARS coronavirus epidemic in 2002-2003, and the sector now accounts for about 60% of the country’s Gross Domestic Product (GDP).

Transportations, tourism, catering and entertainment sectors have been hit during the coronavirus outbreak as people avoided crowded areas.

One and Done or Start of Something Big? Numbers Expected to Improve in March

Zhao Qinghe, a senior statistician with the NBS, seems to think conditions will improve in March. “The speed in operation resumption will shore up PMI in March,” said Zhao.

Another analysts seem to be supporting the “one and done” idea.

“Currently, the economic expectation is improving as the epidemic has seen some effective control, and the production and demand end will largely rebound after the virus is contained, bolstering the manufacturing sector,” said Liu Xuezhi, an economist at the Bank of Communications.

Zhang Ming, chief economist at Ping An Securities said, “The PMI in February did not fall beyond expectations since both manufacturing and non-manufacturing industries have taken a hit of the coronavirus,” said Zhang Ming, chief economist at Ping An Securities.

“Indexes in both manufacturing and non-manufacturing sectors are expected to rebound in March, meanwhile PMI in the manufacturing sector will bounce back faster than that in non-manufacturing industries,” Zhang told the Global Times on Saturday.

“However, the indexes in March will not reach the 50 percent threshold. Manufacturing PMI could get back to 40 percent and above while non-manufacturing PMI over 30 percent,” said Zhang.

“The PMI will be better in March than it was in February, but it will still not be back to where it was a year ago,” Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing, told the Global Times Saturday.

This article was originally posted on FX Empire