Service sector growth slows as PMIs dip in June

Private data for China, Britain and Euro area show less expansion but firms still confident

BEIJING/LONDON • Service sector growth in China, Britain and the Euro area have shown slight cooling last month, private surveys have found, but most firms are expressing confidence for the year ahead.

China's Caixin General Services purchasing managers' index (PMI) fell to 51.6 from May's four-month high of 52.8, according to the survey conducted by Markit and sponsored by Caixin Media. The survey has a smaller sample size of over 400 companies and mainly focuses on small and medium-sized firms.

Caixin said the slower growth in service sector reflected a weaker increase in new order volumes, but service companies are confident of improvement ahead.

The 12-month business outlook edged up to a five-month high in June, with some firms linking positive expectations to new projects and forecasts of improving new order intakes.

The service sector has become an increasingly important part of the Chinese economy as the country tries to shift away from manufacturing. The sector is already dominant in Britain where data showed least expansion in four months in June, IHS Markit data showed. It added to evidence that the economy is weakening as Brexit negotiations start in earnest. IHS Markit's PMI fell to 53.4 from 53.8 in May.

Businesses are calling on Prime Minister Theresa May to prioritise the economy in talks to leave the EU after she lost her parliamentary majority in a snap election.

WEAKNESS IN BRITAIN

The risks are tilted towards the economy slowing in the third quarter. The overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.

IHS MARKIT ECONOMIST CHRIS WILLIAMSON

"The risks are tilted towards the economy slowing in the third quarter," said IHS Markit economist Chris Williamson yesterday. "The overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown."

The report underscores the Bank of England's dilemma as the pound's drop drives inflation above target, prompting some officials to call for higher interest rates.

The majority voted to keep rates a record low last month on concern that the economy is not yet strong enough for tighter policy.

Services also dominate industry in the Euro area where PMI fell to 55.4 in June from the previous month's 56.3, IHS Markit data showed. "The dip in the PMI in June certainly doesn't look like the start of a slowdown," Mr Williamson said.

Earlier PMIs from the bloc's big four economies of Germany, France, Spain and Italy showed faster growth in the second quarter as a whole. A reading above 50 divides expansion from contraction.

BLOOMBERG, REUTERS, XINHUA

A version of this article appeared in the print edition of The Straits Times on July 06, 2017, with the headline 'Service sector growth slows as PMIs dip in June'. Print Edition | Subscribe