Fears about the health of the global economy have increased as recent reports reveal a downturn in service sector activity in China, the eurozone, and the UK. This has led to a drop in share prices in Asia and a decrease in the value of the pound against the US dollar. The worsening situation in China has sparked concerns that its post-lockdown recovery may be faltering.
Both the UK and the eurozone have also experienced weaker service sector activity due to the steady rise in interest rates. These developments have unsettled the markets, especially with regards to China. Speculation is growing that Beijing will need to provide more support to boost demand after the announcement that service sector activity in the country dropped to its lowest level in eight months in August.
Despite the positive news that Chinese property company Country Garden avoided bankruptcy, stock markets globally struggled after the release of China services purchase managers’ index (PMI). The index fell from 54.1 in July to 51.6 in August, falling below economists’ predictions and only slightly above the threshold that separates expansion from contraction.
Analysts suggest that the decline in the service sector is due to sluggish consumer demand, despite previous stimulus efforts. Susannah Streeter, the head of money and markets at Hargreaves Lansdown, stated that these latest figures overshadowed the relief from Country Garden debt payments, highlighting the unpredictable nature of China economy.
Service sector PMIs also dropped below the 50 level in both Britain and the eurozone.
Adrian Prettejohn, Europe economist at Capital Economics, said: “The final eurozone PMIs published today were revised down from the already low levels reported in the flash measure two weeks ago. The services business activity PMI slumped compared with July, and although the manufacturing output PMI edged up, it remained deep in contractionary territory. We continue to forecast a recession in the second half of the year.”
