Japan's Service Sector Growth Slows in November, Outlook Remains Positive

06 Dec, 2023

Japan's Service Sector Growth Slows in November, Outlook Remains Positive

In November, Japan's service sector experienced its slowest expansion in a year, impacted by a notable decline in new exports and softer demand, as revealed by a business survey. The final au Jibun Bank Service Purchasing Managers' Index (PMI) declined to 50.8 from October's 51.6, below the flash reading of 51.7. Despite the dip, the index stayed above the 50.0 threshold, indicating continued expansion.

The service sector has been a beacon of strength for Japan's economy, compensating for challenges faced by the manufacturing sector. New business inched up, while new export business witnessed a second consecutive monthly decline. However, the overall figure for the year has maintained its highest annual reading since the survey's initiation in 2007, reflecting a robust post-pandemic economic recovery.

Trevor Balchin, Economics Director at S&P Global Market Intelligence, noted that while November data indicated a loss of momentum, it should be viewed in the context of a year of robust growth. Higher workloads and new store openings contributed to increased employment, albeit at a slightly slower pace than in October. Input prices, driven by labor and fuel costs, saw their weakest growth in over two years. Prices charged by service providers rose at the slowest pace in 10 months.

Despite the temporary slowdown, service providers hold a positive outlook for the next 12 months, reaching a three-month high. This optimistic sentiment is anchored in expectations of robust demand and business expansion.

In contrast, the Composite PMI, amalgamating manufacturing and service activity figures, slipped to 49.6 in November from October's 50.5, entering contraction territory for the first time since December last year.