Japan's service sector shrinks for 16th straight month as health crisis hits demand

Japan's service sector shrinks for 16th straight month as health crisis hits demand

June 3, 2021
  • The decline in the services industry dragged overall private-sector activity into contraction, and suggested measures to halt a rise in coronavirus infections were hampering the country's economic recovery.
  • The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) slumped to a seasonally adjusted 46.5, down three points from the prior month's final level of 49.5.

Japan's services sector activity contracted for the 16th consecutive month in May as an extension of coronavirus emergency curbs at home and stricter restrictions in key Asian markets due to a resurgence of COVID-19 cases hit demand.

The decline in the services industry dragged overall private-sector activity into contraction, and suggested measures to halt a rise in coronavirus infections were hampering the country's economic recovery.

The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) slumped to a seasonally adjusted 46.5, down three points from the prior month's final level of 49.5, but up from a flash reading of 45.7.

It meant services activity has come in below the 50.0 threshold that separates contraction from expansion every month since February last year.

The latest results back a sister PMI survey on manufacturing released earlier this week that also pointed to a slowing in factory activity due to emergency virus curbs.

Thursday's survey showed firms saw faster contractions in outstanding and new export business last month, highlighting strain they have been feeling from lacklustre demand.

"The Japanese services economy faced a sharper downturn in demand conditions," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

"Panel members highlighted that a surge in COVID-19 infections and the subsequent implementation of another state of emergency dampened output and demand further."

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

Sectors covered in the survey include transport, real estate, communication, information, business services and consumer, excluding retail.

The final au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, was 48.8 in May, slipping back into contraction after expanding in the previous month.

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