TOKYO (Reuters) – Japanese factory activity shrank at the fastest pace in over three years in October, largely hurt by slumping new orders and output, in yet another sign of broadening economic cracks in the face of slowing global demand and trade frictions.
The weak reading adds to pressure on the government and the central bank to take steps to shield the economy from heightening risks to the outlook from a Sino-U.S. trade dispute, slowing global growth and a sales tax hike at home.
The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) in October contracted at the quickest pace since June 2016, slipping to 48.5 on a seasonally adjusted basis from a final 48.9 in the previous month.
“Manufacturing new orders declined at the fastest rate in almost seven years as trade tensions and global economic weakness restricted exports,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“That said, new business in the services economy exhibited a remarkable degree of resilience.”
Key activity indicators in the survey cast a shadow over the manufacturing sector, and could add to calls on the Bank of Japan to step up stimulus at its Oct. 30-31 meeting.
Total new orders shrank at their fastest pace since December 2012, while factory orders and future output were also in contraction.
The batch of frail data pushed a composite index that includes both manufacturing and services into contraction for the first time since September 2016.
The Jibun Bank Flash Japan Composite PMI fell to 49.8 from a final 51.5 in the previous month.
The services sector index expanded at a markedly slower pace on shrinkage in outstanding business, hurt by a sales tax hike to 10% from 8% this month and a powerful typhoon that hit central and eastern Japan.
The Jibun Bank Flash Japan Services PMI fell to a seasonally adjusted 50.3 from the previous month’s 52.8, marking the slowest pace of expansion since September last year.
(Reporting by Daniel Leussink; Editing by Shri Navaratnam)