A sharp drop in demand because of the coronavirus pandemic and the restrictions put on business activities have cause a contraction in the services sector of Japan in March that was the fastest for any month since the global financial crisis more than 10 years ago.
Following the covid-19 pandemic – the disease caused by coronavirus, eliminating all hopes of an economic recovery led by domestic demand, the third largest economy of the world is virtually on the brink of a recession. This has put considerable pressure on policymakers to take significant measures to support the Japanese economy and for support for businesses and incomes.
The Japanese authorities reported the final seasonally adjusted au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropping to 33.8 in March compared to the 46.8 clocked in the previous month and was significantly lower than the 50-mark that typically denotes the boundary between growth and contraction.
The headline figure was the lowest reading since February 2009 at the height of the global financial crisis. It was however slightly higher than a preliminary 32.7 that was released last week.
According to the results of the survey, the drop in business expectations happened at the fastest in the last 10 years. On the other hand, new business expectation was at its lowest level in nearly eight years. The numbers suggested that businesses are finding it hard to negotiate the impact of the virus pandemic.
IHS Markit said that Japanese businesses have also reported closures as well as cancellation of key events.
“The latest combined manufacturing and services PMI data already point to GDP (gross domestic product) contracting at an annual rate of around 8 percent,” said Joe Hayes, an economist at IHS Markit, which compiles the survey. “If the outbreak were to escalate in Japan such that widespread lockdowns are imposed, GDP in the second quarter could be poised for an annual decline in excess of 10 percent,” Hayes added.
The unemployment conditions in Japan, as shown by data from the country, turned negative for the first time since late 2016, suggested a sharp drop in client demand because of the virus pandemic which has forced some companies to reduce the number of staff employed.
According to revised data released last month, in the fourth quarter of last year, the Japanese economy contracted by a more than initially estimated annualised 7.1 per cent. This has raised fears of a deepening slowdown even before the Japan as well as the rest of the world was hit by the coronavirus pandemic.
An unprecedented package of steps to support the economy by the cabinet was ordered by Prime Minister Shinzo Abe on Saturday as the coronavirus pandemic threatens to cause widespread disruption all throughout the country.
Om March, the composite PMI, which includes manufacturing and services, dropped down to 36.2 compared to the 47.0 final score in the previous month and was the lowest since March 2009.
(Adapted from AlJazeera.com)