What’s going on here?
China’s services sector activity in May accelerated at its fastest pace in 10 months, with the Caixin/S&P Global services PMI hitting 54.0, up from 52.5 in April.
What does this mean?
The rise to 54.0 for the Caixin/S&P Global services PMI in May marks the 17th straight month of expansion, the highest level since July 2023. This surge was driven by rapid growth in new business, with both domestic and
export
orders contributing. Staffing levels also saw a notable increase for the first time since January, reaching their highest since September 2023. Meanwhile, the composite PMI, including manufacturing, rose to 54.1, the best in a year. However, rising cost burdens led firms to hike prices, signaling increased price pressures. Despite these positive numbers, business confidence dipped to a seven-month low, reflecting global economic uncertainties and
inflation
concerns.
Why should I care?
For markets: Service sector surge boosts market sentiment.
China’s strong services sector performance in May has lifted market sentiment, with the IMF and Moody’s raising growth forecasts for China’s economy after a solid first quarter. Yet, analysts at Nomura have tempered this optimism a bit, highlighting lukewarm domestic demand and adjusting China’s 2024 GDP growth forecast to 4.5% from 4.3%. Investors should keep an eye on these dynamics, especially given ongoing challenges in China’s property market.
The bigger picture: Mixed signals in China’s economic outlook.
While the services sector shows strong growth, concerns about the broader economic recovery persist, especially with the ongoing property market downturn. Significant contractions in developer contract
sales
pose a major hurdle. Yet, strong export growth offers a cushion against these domestic issues. The global economic climate and rising prices will be crucial factors to watch, as they could impact future business confidence and stability.