TOKYO (Reuters) – Japan’s services sector shrank at the fastest pace in nearly six years in February as a jolt from the coronavirus threatens to push the economy into recession, dashing hopes of a domestic-led recovery.
Pressure on the world’s third-largest economy has built rapidly during the past weeks as consumer and business sentiment are taking a sharp hit from a deepening slowdown in China, Asia’s largest economy.
The final seasonally adjusted au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) slumped to 46.8 in February from 51.0 in the previous month, its lowest reading since April 2014 when a nationwide tax hike jolted the economy.
The headline figure was slightly above a preliminary reading of 46.7. The survey data highlighted a widening fallout from the coronavirus epidemic just as consumers were coming to grips with October’s tax hike, with new business contracting at the fastest pace in eight-and-a-half years.
Japan’s economy is “exceedingly likely” to slip into recession in the current quarter following its contraction in the three months to December unless it sees an exceptional rebound in March, said Joe Hayes, economist at IHS Markit, which compiled the survey.
“Policymakers are powerless in offsetting the economic effects of coronavirus,” Hayes said.
“Supply chains are likely to face bottlenecks as Chinese vendors face heavy backlogs, while increasing cases of COVID-19 outside of China will do little to spur consumers to travel and go out to restaurants.”
Firms were hit by lower levels of tourism because of fewer foreign visitors in Japan, with survey respondents saying they had to close their stores due to a lack of work.
Business expectations fell, growing at the slowest pace since July 2016, suggesting the economy is likely to remain under pressure for the time being.
The composite PMI, which includes both manufacturing and services, also shrank at the fastest pace since April 2014, falling to 47.0 from January’s final 51.0.
(Reporting by Daniel Leussink; Editing by Sam Holmes)