Investing.com -- Chinese service sector activity grew more than expected in July, a private survey showed on Thursday, as some resilience in consumer spending and demand for services aided the sector.
The Caixin services purchasing managers index (PMI) rose to 54.1 in July, more than expectations for a reading of 52.5 and the prior month’s 53.9. A reading above 50 indicates expansion.
The reading indicates that some facets of the Chinese economy - specifically domestic retail spending and demand - remained resilient despite worsening trends for the country’s biggest economic engines.
The Caixin survey noted that external demand for services still remained weak, with new export business barely managing to rise in July. Overall growth in the services PMI also appeared to have slowed from the first six months of the year.
The positive service sector reading largely contrasted data on the manufacturing sector released earlier this week, which showed that activity contracted in July.
A Chinese economic recovery ran out of steam in the second quarter, and showed little signs of improvement in the beginning of the third.
The government is now expected to roll out more measures to promote private spending and consumption - a trend that could keep the services sector in expansion territory for the remainder of the year.
“In terms of policies, the top priorities should still be guaranteeing employment, stabilizing expectations and increasing household income. At present, monetary policy only has a limited effect on boosting supply. An expansionary fiscal policy that targets demand should be prioritized,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.
But weakness in manufacturing is expected to eventually spill over into the rest of the economy, as are worsening conditions in the country’s massive real estate market.
Still, the Caixin survey showed that service sector firms remained upbeat over their prospects for the remainder of the year. Growth in the sector also helped overall business activity remain in expansionary territory.