China’s services sector activity shrank in September for the first time in four months as COVID restrictions kept hitting the country amid weakening demand and battered business confidence.

Reuters cited a Caixin survey, reporting that Caixin services purchasing managers’ index (PMI) sharply dropped to 49.3, down from 55.0 in August.

The survey came as new COVID outbreaks occurred in multiple provinces and controlled measures disrupted business operations.

A reading below 50 indicates contraction while the number above 50 signals expansion. 

Wang Zhe, senior economist at Caixin Insight Group said that, “The current pandemic situation is still severe and complex, and the negative impact of COVID controls on the economy is still pronounced.” 

Earlier on September 30, the official PMI from China’s National Bureau of Statistics, showed that the services sector also fell to 48.9 in September from 51.9 in previous month.

China authorities have tightened COVID-controlled measures ahead of the 20th National Congress of the Chinese Communist Party (CCP). Experts expect the zero-COVID policy will not be relaxed after the CCP’s national congress. 

Bloomberg citing Natixis SA reported that China’s COVID travel restrictions are estimated to have taken away about 1.1% from the country’s GDP growth in the third quarter due to weakening consumption.

Many financial institutions and economists lowered their China’s GDP growth forecast for this year. The latest survey from Nikkei Asia shows that economists cut the country’s 2022 growth forecast to 3.2%.  

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