Chinese service sector growth eased to its weakest in almost two years in April amid weaker new order flow and a decline in employment level, a survey by Markit Economics and HSBC revealed Monday.
The business activity index for the service sector fell to 51.1 in April from 54.3 in March. Eventhough the reading above 50 indicated expanding activity, it still represented the weakest expansion since August 2011.
"The cooling of service sector activity in April likely reflected the knock-on effect of slower manufacturing growth, the impact of property tightening measures and the spreading bird flu," HSBC chief China economist Hongbin Qu said.
The composite output index, that measures the performance of both manufacturing and services, dropped to 51.1 from 53.5 in March. This suggested that the rate of expansion in private sector activity was the weakest since last October.
Behind the soft reading was a slower rate of new order growth in April, Markit said. Both the manufacturing and service sector posted modest rates of expansion in new orders that were weaker than in March. At the composite level, new order growth was the slowest in seven months.
Employment in the private sector declined for the first time since last October. Both input prices and output charges declined at the composite level, the survey found. It was the first time service providers had cut their staff numbers since January 2009, the survey report said. "All these are likely to add some risk to China's growth in the second quarter, as there's still a bumpy road towards sustaining growth recovery," Hongbin said.
Although service providers were optimistic towards the 12-month business outlook in April, the degree of positive sentiment towards future growth was the weakest in the seven-and-a-half year series history, Markit said.
A survey by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed last Friday that growth in non-manufacturing industry moderated in April.
Results of separate surveys by the government and Markit Economics suggested slowdown in activity in the manufacturing sector in April.
China's economy expanded 7.7 percent year-on-year in the first quarter, decelerating from a 7.9 percent expansion in the fourth quarter that ended seven quarters of slowdown.
China will release the foreign trade data on Wednesday and the inflation figures will be released on Thursday.
The yuan surged to a record high last Thursday. Following the gain in the currency, China's State Administration of Foreign Exchange, or SAFE, said Sunday that it will tighten scrutiny of forex positions of banks as well as export and import enterprises.
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