Economic Buzz: China service sector drives overall expansion of output in July

China?s service sector expanded at a stronger pace at the start of the third quarter, according to latest PMI data. Services activity rose at a quicker pace due to rising inflows of new business, which were in turn supported by a fresh rise in foreign demand.

Business sentiment also improved to the highest level since March. Higher workloads and rising confidence led services firms to hire additional staff in July. An expansion of workforce capacity meanwhile led to a softer accumulation of backlogged work.

Turning to prices, average input costs and output charges both increased marginally. Nevertheless, this marked the first rise in selling prices since January.

The headline S&P Global China General Services Business Activity Index rose to 52.6 in July, up from 50.6 in June. Posting above the 50.0 no-change mark, the latest data indicated another expansion of services activity in China.

Higher new business supported the rise in activity going into the second half of the year. Greater amounts of new work supported a fresh round of job creation in July. After shedding staff in June, service providers raised their staffing levels at the quickest pace since July 2024.

Amid rising new business and activity, overall business confidence improved. Service providers were the most upbeat in four months, driven by hopes that better economic conditions and improved global trade flows will support new sales and activity growth in the year ahead.

Lastly, on prices, rising raw material, fuel and salary expenses led to a further increase in average input costs in July.

The Composite Output Index posted above the 50.0 no-change threshold at 50.8 in July, down from 51.3 in June. This indicated that output expanded for a second successive month, albeit at a softer pace. Growth was limited to the service sector, as manufacturing production declined at the start of the third quarter.

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