Caixin’s Purchasing Managers Index, a watchful indicator for assessing the state of the economy, fell to 36.2 in April from 42 in March, according to a survey released Thursday by IHS Markit. A reading below 50 indicates contraction, while anything above that meter indicates expansion.
The service sector accounts for more than half of the country’s GDP and more than 40% of employment. And as survey data shows that China’s manufacturing sector also contracted last month, the world’s second-largest economy contracted in April.
While conditions may improve this month as the number of Covid infections dwindle and officials try to limit the damage to the economy, large parts of Beijing have just been put under stricter restrictions and some economists are now forecasting China’s GDP to fall in the second quarter. .
Companies in the world’s second-largest economy were already battling rising energy and raw material costs as Covid lockdowns further crippled their operations.
It has also become more difficult for companies to pass the higher prices on to consumers, due to the impact Covid restrictions are having on customer demand. This has translated into even lower employment.
“Some companies, affected by the drop in orders, have laid off employees to cut costs,” Wang said. Service sector employment measure has been below 50 for four months in a row† the survey revealed.
The data came just hours after China reported a sharp drop in tourism spending for the Labor Day national holiday.
Tourist spending was just 64.7 billion yuan ($9.8 billion) during the five-day holiday, down 43% from the same period last year, according to a statement from the Ministry of Culture and Tourism late Wednesday.
People made 160 million domestic tourist trips during the holidays, 30% less than a year earlier.
The data shows once again how China’s zero-covid policy has taken a heavy toll on its economy.
On Saturday, PMI government surveys indicated: that both factory and non-manufacturing activities fell in April to the worst level since February 2020.
“Recent mobility trends suggest that China’s growth momentum deteriorated significantly in April,” Fitch Ratings analysts wrote on Tuesday. They expect GDP to contract in the second quarter, before production recover in the second half.
Analysts at Nomura also warned last month of an increasing risk of a “recession” in the second quarter as lockdowns, a shrinking real estate sector and slowing exports hit the economy hard.
As the highly transmissible Omicron variant spreads rapidly in China, the country is experiencing its worst outbreak in more than two years. So far, at least 27 Chinese cities have been completely or partially shut down, which could affect up to 185 million residents across the country, according to CNN’s latest calculation.
More than two years after the initial outbreak, the Chinese government is still adhering to its strict zero-covid policy – at a time when the rest of the world is learning to live with Covid. The policy includes mandatory mass testing and strict lockdowns to contain the spread of the virus.
But the economic costs are rising.