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UPDATE 1-Growth in China's June services hits 14-month low - Caixin PMI

(Adds June air travel data, quotes from analysts and a cinema operator)

BEIJING, July 5 (Reuters) - Growth in China’s June services sector slowed sharply to a 14-month low, after a resurgence of COVID-19 in southern China, a private survey showed on Monday, adding to concerns the world’s second-largest economy may be losing some momentum.

The Caixin/Markit services Purchasing Managers’ Index (PMI) fell to 50.3 in June, the lowest since April 2020 and down significantly from 55.1 in May. It held just above the 50-mark, which separates growth from contraction on a monthly basis.

China’s official services gauge had also shown a marked slowdown in June, though it remained well in expansion territory. The private survey typically focuses more on smaller companies.

Coupled with a slowdown in manufacturing, analysts say the PMI survey findings suggest that pent-up COVID demand may have peaked and China’s robust economic rebound from the crisis is starting to moderate.

Though slower to recover from the pandemic than manufacturing, a gradual improvement in consumption in recent months had boosted the services sector.

But a COVID-19 outbreak of the more infectious Delta strain in the export and manufacturing hub of Guangdong in May-June and the subsequent imposition of anti-virus measures weighed on consumer and business activity.

A sub-index of new business stood at 50.5 in June, also the lowest since April 2020 when the sector was still paralysed by COVID-19 and lockdowns. Firms also cut staff in June for the first time in four months, as a result of slowing demand.

Karaoke outlets, restaurant owners and cinema operators in Guangdong province told Reuters that their business was adversely impacted by social distancing rules during the latest outbreak.

“Our cinema was closed from early June to early July due to the outbreak in Guangzhou. There were zero customers,” said a receptionist surnamed Zhu at Zhongying International Cinema in Guangzhou, the provincial capital.

“But once we reopened on July 3, the customer flow actually increased, most likely because the pandemic is now under control or the summer holiday has begun,” Zhu added.

ONE-OFF?

Some economists said the sharp slowdown was a one-off.

“Both official and Caixin services PMIs may rebound in July, driven by the release of pent-up demand for services following the containment of the latest wave of COVID-19 in Guangdong and a likely relaxation of some social distancing rules,” said Lisheng Wang, China economist at Nomura.

While the government reacted quickly to contain the new wave of cases, and economic disruptions are easing, the private survey showed services providers’ business outlook for the year ahead slipped to the lowest in nine months.

Air travel, accommodation and catering are especially susceptible to new COVID-19 outbreaks, analysts say.

Domestic airline capacity in June, measured by available seat kilometers (ASK), fell to the lowest in two years, according to aviation data provider Variflight. Flight capacity in Guangdong was particularly hit by local COVID-19 cases and summer thunderstorms, it added.

One bright spot in the survey was a marked easing in inflationary pressures, which have squeezed profit margins. Input costs rose at the slowest pace since September 2020, and services firms cut their prices charged for the first time in 11 months to win new business.

Caiman’s June composite PMI, which includes both manufacturing and services activity, fell to a 14-month low of 50.6 from May’ s 53.8. (Reporting by Stella Qiu, Beijing newsroom and Ryan Woo; Editing by Kim Coghill)

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