China’s services activity disappoints in another blow to economy

The economy is at risk of a rapid slowdown starting in the second quarter even after it recorded a solid start to the year

China’s services activity deteriorated more than expected in April, a private survey showed, the latest setback for an economy already under pressure from US tariffs.

The Caixin China services purchasing managers’ index fell to 50.7 from 51.9 the month before, according to a statement from Caixin and S&P Global on Tuesday. The median forecast of economists surveyed by Bloomberg was 51.8. Any reading above 50 suggests expansion.

The economy is at risk of a rapid slowdown starting in the second quarter even after it recorded a solid start to the year. With the official PMIs showing factory activity already took a hit from massive US tariff hikes in April, the question now is whether policymakers will be able to boost consumption fast enough to make up for an expected loss of demand for exports.

Analysts polled by Bloomberg forecast growth in gross domestic product will decelerate to 4.2% this year, significantly below the official target of around 5%, which Finance Minister Lan Fo’an reaffirmed recently.

The state of the job market will go a long way to determining the strength of consumer spending. Goldman Sachs Group Inc. estimates 16 million people — or more than 2% of the labor force — may be exposed to US-bound exports.

The official non-manufacturing PMI, which measures activity in construction and services, came in at 50.4 in April, slightly below the consensus forecast of 50.6. A sub-gauge for services has hovered around the 50-point line that separates contraction from expansion since the start of the year.

The private and official surveys cover different sample sizes, locations and business types, with the Caixin report focusing on small and medium-sized firms in the non-state sector.