-Annabel Fiddes, an economist at Markit
Activity in China's services sector fell to the lowest level in five months in June, reinforcing the view the economy still needs further monetary assistance from Beijing. The HSBC/Markit's services PMI dropped to 51.8, compared with 53.5 in the preceding month. Even though the reading slid to the lowest level since January, it still indicated expansion for the 11th consecutive month. A reading above 50 points suggests growth in the sector, while one below that points to contraction. The new business sub-index declined to 52.2, hitting an 11-month low, down from 54.4 in May, while the employment sub-component dropped to its lowest in three months and indicated jobs were being shed. The services sector has made up the bigger part of China's economic output for at least two years, with its share increasing to 48.2% last year, compared with the 42.65% contribution from manufacturing and construction.
In June, the PBoC cut lending rates for the fourth time since November and lowered the amount of cash that banks must hold as reserves. Yet, economists remain concerned about the outlook in light of erratic global demand for China's exports and fears of a collapse in its volatile stock market. Analysts expect the central bank to ease policy further to support growth. The government is due to release second-quarter GDP data on July 15 and most economists expect growth to dip below 7%, which would be the weakest performance since the global financial crisis.
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