Japan's Service Sector Shows Resilience with Rise in Overseas Sales Despite Gloomy Global Outlook
In a recent private sector survey, Japan's service-sector activity continued to show gains in August, driven by an increase in overseas sales even as the global economic outlook darkens. The final au Jibun Bank Service purchasing managers' index (PMI) held steady at 53.7 last month, marking the second consecutive month above the crucial 50.0 line that separates expansion from contraction.
Although the headline figure matched July's reading, there was a slight slowdown in new business growth for service companies. However, export sales rebounded from a contraction in July to record the largest rise in three months, providing support to the overall service-sector business.
This positive trend in the service sector contrasts with the recent manufacturing PMI for August, which reported the weakest exports in five months due to sluggish demand in key markets such as China and South Korea. The latest government data also revealed that Japan's export growth fell short of expectations in July, raising concerns about a potential slowdown amid a stronger yen and softer global conditions.
The slowest service price inflation in nine months, coupled with a dip in service-sector employment and business optimism to seven- and 19-month lows, respectively, were also highlighted in the August PMI data. On a brighter note, the composite PMI, which combines both manufacturing and service activities, rose to 52.9 in August from 52.5 in the previous month, driven by a recovery in manufacturing output.
Economist Usamah Bhatti from S&P Global Market Intelligence noted that the sustained growth in the service sector and the resurgence in manufacturing output contributed to a stronger improvement in the health of Japan's private sector economy, marking the fastest growth since May 2023.
In conclusion, while Japan's service sector continues to show resilience amid global headwinds, challenges remain due to weak global demand and the potential impact on economic growth. Investors and market participants should closely monitor these trends to make informed decisions about their investments and financial strategies.