UK inflation expected to pick-up in early-2021, after tighter supply chains and rising demand led to a sharp increa… https://t.co/2ZojhIpnl3
Subdued Japanese private sector restrains pace of economic growth in third quarter
Despite efforts from the government and central bank to stimulate growth, Japan's economic recovery remains anaemic. The country has been besieged by a combination of natural calamities, soft external demand and weak household consumption this year, and September survey data suggest there is no end yet in sight for the beleaguered economy, pointing to an ongoing decline in business activity.
Ongoing decline in September
The Nikkei Japan Composite PMI Output Index, a weighted index combining manufacturing and services PMIs, signalled a contraction in the overall private sector for the sixth time in the past seven months. The September reading of 48.9 was down from 49.8 in August and the lowest since April. This brought the quarterly average to 49.6 in Q3. While this is marginally higher than 49.0 in Q2, it is lower than the 51.2 average seen in the first quarter.
Although the September PMI data, compiled by IHS Markit, showed manufacturing conditions stabilising, services activity fell at the fastest pace in nearly two-and-a-half years. The PMI suggests therefore that the economy looks set for another near-stagnation in the July-September period.
Manufacturing output and services activity
Tentative signs of stronger growth
The September surveys also showed that new business volumes were steady for a second successive month, an improvement on the declines seen in the prior five months but still short of the expansions seen at the start of the year. Weak global demand, the strong yen and feeble household spending were widely reported to have again dampened order books.
The Nikkei PMI has nevertheless indicated a slower pace of decline in new orders in Q3 compared to Q2. This has emboldened companies' expectations, with firms projecting greater output in the future due to preparations for the 2020 Olympic Games, new expansion plans, improved advertising and a further recovery from the Kumamoto earthquakes. Employment consequently rose, albeit only marginally, for the first time since May. However, although up on the lows seen earlier in 2016, business optimism in the service sector remains muted relative to the average over the past four years.
Deflationary pressures persist
Inflation remains an elusive goal. Stable input prices enabled companies to lower their charges for the seventh time in the past eight months. Lower prices helped to boost sales amid sluggish growth, but the danger is that this further dampens inflation expectations.
Against signs of slowing economic growth and mounting deflationary pressures, the Bank of Japan re-calibrated their monetary policy framework in September. As Japan's economy continues to struggle, this new monetary framework and incoming fiscal stimulus will be welcomed. However, tepid economic growth is expected to persist. IHS Markit projects Japan's economy to expand 0.6% in 2016 and accelerate to just 0.7% in 2017.
Bernard Aw, Principal Economist, IHS Markit
Tel: +65 6922 4226
- UK manufacturers face sharpest rise in input prices for two-and-a-half years
- Week Ahead Economic Preview: Week of 18 January 2021
- Global growth slows at end of 2020 as COVID-19 infections rise
- APAC Economic Outlook for 2021: a year of uncertainty
- Week Ahead Economic Preview: Week of 11 January 2021
- Global growth slows further in December as COVID-19 infections rise
- Global factory growth ends 2020 close to decade-highs, but supply worsens
- Week Ahead Economic Preview: Week of 21 December 2020
This week sees the release of flash PMIs , indicating how the four largest developed word economies have fared in t… https://t.co/AWi4YG298H
Our Chief Asia-Pacific Economist, Rajiv Biswas, takes a look at the key drivers of growth across the region in 2021… https://t.co/ltUoKh7BkX