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UPDATE 1-China's May HSBC services PMI eases to 4-month low of 50.7
June 5, 2014 / 1:50 AM / 3 years ago

UPDATE 1-China's May HSBC services PMI eases to 4-month low of 50.7

(Adds more details, economist's quote)

BEIJING, June 5 (Reuters) - Growth in China's services sector retreated to a four-month low in May, a private survey showed, contrasting with other data which had raised hopes that the world's second-largest economy may have steadied last month.

The services purchasing managers' index (PMI) compiled by HSBC/Markit slipped to 50.7 in May from April's 51.4, but still above the 50-point level demarcating a monthly growth in activity from a contraction.

In a sign that some companies remained cautious about their prospects, business expectations fell to 58.1, a one-year low and the second-worst reading ever recorded since collection of the data began in November 2005.

The findings buck the trend seen in other China PMI data in recent days which suggested the economy may be stabilising after a weak start to the year and raise the question of whether Beijing needs to do more to put a floor beneath growth.

"Growth momentum remains slow and private sector sentiment is weak," HSBC economist Qu Hongbin said in reference to the "slight disappointment" in the latest PMI poll.

"We think policymakers should continue to ease monetary and fiscal policies in coming months to help support growth."

To shore up the economy, the Chinese government has loosened policy in small and incremental steps so that growth can be lifted in areas it deems appropriate and which do not fuel pure financial speculation. Just last week, authorities said they will lower the reserve requirements for some banks.

Three separate PMI polls released in the past week all showed China's factory and services sectors enjoying their best performances in four or five months in May as foreign and domestic demand improved.

Taken together, the PMI releases signal that China's economic outlook remains uncertain, even if a mild recovery may be at hand.

Businesses appear to agree.

Firms surveyed in Thursday's PMI indicated they are not as confident as before due to the murky economic outlook. And the guardedness has led companies to delay hiring new workers, HSBC/Markit said, citing anecdotal evidence.

For the month, the employment sub-index in the services PMI hovered around the 50-point mark, indicating marginal growth. (Reporting by Koh Gui Qing; Editing by Kim Coghill)

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