TOKYO, November 24 (Reuters) – Japanese manufacturing activity contracted at the fastest pace in two years in November as demand worsened on strong inflationary pressures, a business survey showed on Thursday.
The contraction in factory activity also marked the first monthly decline in 22 months and raised a question mark over Japan’s economic outlook, as the country relies heavily on trade with China and other countries for its growth.
The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) slipped to a seasonally adjusted 49.4 in November, from a final reading of 50.7 the previous month.
This means that activity registered the sharpest contraction since a reading of 49.0 in November 2020 and fell below the 50 mark that separates contraction from expansion for the first time since January last year.
“Cooling demand conditions and strong inflationary pressures would have continued to hamper output and new orders,” said Laura Denman, economist at S&P Global Market Intelligence, which compiles the survey.
“Manufacturing companies also appear increasingly wary of their future, as indicated by a decline in business sentiment that put the index at its lowest level since May.”
Output contracted at the fastest rate in 26 months, falling for the fifth consecutive month, according to the survey results.
New export orders and overall new orders also posted sharp declines.
The survey showed the rate of input price inflation fell to its lowest level in 14 months, suggesting cost pressures were easing somewhat, although input prices continued to rise at a historically high rate.
Activity in the services sector stagnated even as new business entries rose for a third straight month, the data showed.
The flash services PMI at Jibun Bank came in at a seasonally adjusted 50.0 in November, down from the previous month’s close of 53.2, according to the survey.
This did not prevent the composite index, which is calculated using both manufacturing and services, from contracting.
Japan’s flash composite PMI at Jibun Bank fell to 48.9 from 51.8 the previous month, contracting at the fastest pace since February.
Data last week showed Japan’s economy unexpectedly contracted for the first time in a year in the third quarter, fueling further uncertainty about the outlook as global recession risks, yen weakness and rising import costs weighed on household consumption and businesses.
(Reporting by Daniel Leussink; Editing by Kim Coghill)
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