Global Services Sector Sees Tentative Pickup as Lockdowns Ease

China's services sector emerged from a three-month slump to record strong growth in May, while its counterparts in the rest of the world saw further declines in activity as lockdowns began to ease.

China was the first major economy to begin reopening after the novel coronavirus outbreak. But even as service providers reported a pickup in output for the first month since January, they continued to cut jobs.

In Europe, however, job losses have been kept down by government programs that pay the wages of furloughed workers who are kept on by their employers, with figures also released Wednesday showing that the number of unemployed people rose by just 211,000 in April. During that same month, U.S. jobless numbers rose by almost 16 million.

The services surveys, combined with similar measures for manufacturing released Monday, suggest the global economy is set to contract even more sharply in the second quarter than it did in the first.

"This is the biggest recession we've experienced in our lifetime," said Jérôme Haegeli, chief economist at insurance company Swiss Re. "It's like a car crash, without an air bag."

Mr. Haegeli expects the global economy to contract by 3.9% this year, with the U.S. economy shrinking by 6.4% and China's economy growing by 2.7%. He expects the U.S. economy to grow by 4.2% in 2021, and 1.9% in 2022.

China's Caixin Purchasing Managers Index for the services sector rose to 55.0 in May from 44.4 in April, reaching its highest level for almost a decade. A reading above 50.0 points to an increase in activity, while a reading below that level points to a decline.

Elsewhere, the PMIs pointed to continued contractions. Globally, India recorded the lowest PMI reading for services as lockdowns tightened in April. Its May reading rose only slightly, to 12.6 from 5.4. In Japan, the PMI rose to 26.5 from 21.5.

Across the eurozone as a whole, services activity continued to weaken even as governments began to lift the restrictions imposed in March and April. The currency area's PMI rose to 30.5 from 12.0.

"The downturn has already eased markedly in all countries surveyed," said Chris Williamson, chief economist at IHS Markit, the data firm that compiles the services surveys. "Optimism about the outlook has also returned in Italy and, to a lesser degree, France, while pessimism has moderated markedly in all other countries."

The prospects for recovery will be aided by the apparent success of European governments in limiting unemployment. The European Union's statistics agency said the eurozone's jobless rate rose to 7.3% in April from 7.1% in March, a much smaller increase than that expected by economists. Using the same method of calculation, the U.S. jobless rate stood at 14.7% in April, up from 4.4%.

However, the eurozone's jobless total was kept down by a 746,000 surge in inactive workers in Italy, suggesting the hit to household incomes in the currency area's third-largest member will be greater than the jobless figures alone would suggest.

In the U.S., the results of similar surveys to be released later Wednesday are also expected to point to a shallower drop in services activity during May. The Institute for Supply Management's services index is expected to increase to 44.0 from 41.8 in April.

In developed economies such as the U.S., services account for the bulk of economic activity. In the U.S., 80% of annual economic output is accounted for by services, compared with 69% in Germany and just 53% in China, which relies more heavily on manufacturing.

But there are big differences in the kinds of services that economies specialize in. Those that have been hardest hit by lockdowns -- restaurants, retailers and other person-to-person activities -- account for about 16% of U.S. economic output, roughly the same proportion as in China. By contrast, those types of services account for almost a quarter of Spain's gross domestic product.

Write to Paul Hannon at paul.hannon@wsj.com


  (END) Dow Jones Newswires
  06-03-20 0623ET
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