Global Market: China's services growth slows to 10-month low in July; weak demand weighs on outlook

China's services sector expanded at its slowest pace in 10 months in July as softer domestic demand weighed on business activity and new orders, signalling that the country's economic recovery continues to face headwinds, Reuters reported.

According to a private survey compiled by S&P Global, the RatingDog China General Services Purchasing Managers' Index (PMI) eased to 50.4 in July from 54.1 in June. The reading remained above the 50-mark, indicating continued expansion, but marked the weakest pace of growth since September 2024.

The private survey painted a slightly more optimistic picture than the official PMI released earlier, which showed China's services activity slipping into contraction during the month.


According to Reuters, the moderation in services activity was accompanied by the slowest increase in new business since March, reflecting weaker domestic demand. While overseas business continued to improve for a third straight month, supported by stronger demand linked to exhibitions, study tours, financial transaction settlements and improved business management, overall momentum remained subdued.

Employment in the services sector increased for the third consecutive month, although hiring slowed compared with June. Business confidence also remained positive but slipped to its weakest level since February 2020, indicating growing caution among firms about the economic outlook.

The broader Composite Output Index, which combines manufacturing and services activity, declined to 50.8 in July from 53.6 in June, suggesting overall economic growth lost momentum at the start of the third quarter.

Impact on stock markets
The weaker-than-expected services PMI is likely to weigh on investor sentiment toward Chinese equities, particularly stocks linked to domestic consumption, retail, travel and property, as it reinforces concerns about sluggish consumer demand.

However, export-oriented companies and firms benefiting from overseas demand may remain relatively resilient, given the continued expansion in services exports.

For broader Asian markets, the data could increase expectations that Chinese policymakers will introduce additional stimulus measures to support growth. While such expectations may cushion market losses, the weak domestic demand backdrop could keep investors cautious toward China-focused sectors in the near term.

The softer PMI reading may also influence commodity markets, as slower services and overall economic activity could temper expectations for China's demand for industrial metals and energy.

Global investors are expected to closely monitor upcoming Chinese economic data and any fresh policy support measures for further clues on the strength of the country's recovery.