First decline in several months registered in services sector of Japan

According to the last business survey held in Japan, there was a decrease in the services sector in August, which became the first one since March. The decrease is linked to the recent coronavirus outburst that affected the demand.

The registered decline demonstrates that an economic revival is still unstable and cannot give solid confidence against the growing pessimism over the world growth.

One of the main indicators used for evaluation is the final au Jibun Bank Japan Services purchasing managers’ index (PMI). The August value of this index, with the seasonal change being taken into consideration, dropped to 49.5. This was the first time of this indicator going below 50 since the beginning of spring.

Although the latest value turned out to be higher than the previously forecasted meaning of 49.2, the current figures are still lower than the July figures of 50.3. It’s worth noting that a fall below 50 is generally considered to be a sign of transition from expansion to contraction.

According to the words of S&P Global Market Intelligence economics associate director Annabel Fiddes, the services sector decline is paralleled by the continuing decreasing of production in manufacturing sector as well, and said decreasing is the quickest one registered over the year.

Nevertheless, she noted that the recent decline is less significant than the one which had happened at the beginning of the year under similar circumstances of a coronavirus outbreak. The difference results from the easing of COVID-19 related restrictions.

Average costs for services companies have increased recently due to a rapid hike in prices of fuel, energy and source materials, while the companies have been rising their prices at a more moderate pace.

The composite purchasing managers’ index, which evaluates the data from both services and manufacturing sector, has also declined for the first time in half a year, dropping below 50 as well. The registered value of the composite PMI is 49.4.

Fiddes added that no easing of pressure on the Japanese private sector is expected any time soon.