China's services sector faces a big setback in March

China’s services sector activity is hit hard by a surge in Omicron with activity in the sector contracting at the sharpest pace in two years in March.

The surge in coronavirus cases restricted mobility and weighed on demand, a private sector survey showed on Wednesday says Reuters.

Services sector activity drop

The Caixin services purchasing managers’ index (PMI) fell to 42 in March from 50.2 in February, falling below the 50-point threshold that distinguishes monthly expansion from contraction. The reading represents the steepest drop in activity since the pandemic’s first beginning in February 2020.

The poll, which focuses on small businesses in coastal areas, corresponded with the results of an official survey, which also revealed a decline in the services sector.

According to analysts, contact-intensive service industries like as transportation, hotels, and catering were hit the hardest, clouding the prospect for a much-anticipated resurgence in consumer spending this year.

For MIDF, China’s services activities are set to slowdown in Mar-22 and Apr-22 amid Covid-19 lockdown measures in certain cities in the country.

Inflation

The services PMI registered at 42, the first contraction in 7-month and the lowest since Feb-20. Decline in new orders and exports sales are among the dragging factors.

On top of that, rising input inflation due to soaring global energy prices add more pressure on business cost.

Possible slower than expected China’s GDP growth may affect emerging economies performance in particular via external demand and the lockdown of certain cities will add pressure on global supply chain activity. We still maintain Malaysia’s exports forecast at +7.8% for this year (2020: +26.0%).