Japan’s service sector contracts for 16th consecutive month as health crisis hits demand

Commuters wearing masks walk near Shinjuku Station in Tokyo on November 19, 2020.

Kazuhiro Nogi | AFP via Getty Images

Service sector activity in Japan contracted for the 16th consecutive month in May, as an extension of emergency coronavirus restrictions at home and tighter restrictions in major Asian markets due to a resurgence of COVID-19 cases have affected demand.

The decline in the service sector has resulted in the contraction of overall private sector activity, and the measures suggested to stop an increase in coronavirus infections were hampering the country’s economic recovery.

The final purchasing managers index (PMI) at Jibun Bank Japan Services fell to seasonally adjusted 46.5, down three points from the final level of 49.5 the previous month, but up by compared to a flash reading of 45.7.

This means that services activity has fallen below the 50.0 threshold that separates the contraction from the expansion every month since February of last year.

The latest results confirm a sister PMI manufacturing survey released earlier this week, which also indicated a slowdown in plant activity due to the fight against emergency viruses.

Thursday’s survey showed companies saw faster contractions in stock and new export activity last month, underscoring the strain they are feeling due to weak demand.

“Japan’s service economy has faced a more marked slowdown in demand conditions,” said Usamah Bhatti, economist at IHS Markit, who is compiling the survey.

“Panel members pointed out that an increase in COVID-19 infections and the subsequent implementation of another state of emergency have further dampened production and demand. “

While the survey showed companies remained optimistic about the outlook for the coming year, citing hope that an end to the pandemic would support demand at home and abroad, the level of their optimism was at the highest level. lowest in four months.

The sectors covered by the survey are transport, real estate, communication, information, business services and consumption, excluding retail trade.

The final PMI at the Jibun Bank Flash Japan Composite, which is calculated using both manufacturing and services, was 48.8 in May, falling back into contraction after rising the month before.

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