China's Caixin services PMI picks up in May but remains in contraction

Activity in China’s services sector picked up in May but remained in contractionary territory as Covid restrictions weighed, according to data released on Monday.

The Caixin services purchasing managers’ index rose to 41.4 from 37.2 in April, coming in well below consensus expectations for a reading of 47.3. A reading above 50 signals expansion, while a reading below indicates contraction.

Wang Zhe, senior economist at Caixin Insight Group said: "May’s reading was the second-lowest since February 2020 as China’s Covid-19 epidemic still weighed heavily on services activities.

"Both supply and demand in the services sector shrank further. The services PMI and the gauge for total new business in May both rose from April’s recent lows, but the May readings were still well below 50.

"That shows local Covid outbreaks were still hurting the services sector. Due to the effects of epidemic control measures, especially travel restrictions, the gauge for new export business remained in negative territory for the fifth straight month"

Oanda market analyst Jeffrey Halley said that while the figure was nothing to write home about, "investors will take heart that some sort of rebound has taken place even as restrictions remained in place in Shanghai and Beijing, and that as they ease in both cities, the rebound will accelerate".