Japan's services sector shrinks for first time in five months in August

Japan's services sector activity shrank for the first time in five months in August as a resurgence of Covid-19 infections hurt demand, a business survey showed.

The contraction shows that a recovery of the world's third-largest economy remains fragile at best and is worrying at a time when the global growth outlook is turning increasingly pessimistic.

The final au Jibun Bank Japan Services purchasing managers' index (PMI) dropped to a seasonally adjusted 49.5, marking the first contraction since March.

The figure was slightly better than a 49.2 flash reading but worse than a slight expansion in activity of 50.3 in July. The 50-mark separates contraction from expansion.

"A renewed drop in services activity accompanied a further drop in manufacturing production, with the latter falling at the quickest pace since September 2021," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence, which compiles the survey.

"However, service providers noted a weaker drop in output than those seen at the start of 2022, when there was also a spike in infections, as pandemic-related restrictions have been eased notably since then."

Average cost burdens faced by services firms expanded at a marked pace in August due to hikes in energy, fuel and raw material costs, while firms continued to raise their fees modestly.

The composite PMI, which is estimated by using both manufacturing and services, shrank for the first time since February, dropping to 49.4 from July's 50.2 final.

"It's likely that Japan's private sector will remain under pressure in the months ahead," added Fiddes.