TOKYO (Reuters) - Japan’s services sector returned to growth in November after shrinking for the first time in three years in the previous month, though the overall momentum was unconvincing in an economy teetering on the brink of contraction.
The final seasonally adjusted Jibun Bank Japan Services Purchasing Managers’ Index (PMI) edged up to 50.3 in November from 49.7 in October due to a modest improvement in new business and business expectations.
It was above the 50 mark that separates expansion from contraction, though it was still just off the 50.4 preliminary reading for last month.
The overall outcome was “highly discouraging” for the Japanese economy as the strength of recovery was limited, with activity growing only marginally, said Joe Hayes, economist at IHS Markit, which compiles the survey.
“Japan’s service sector has been robust in 2019 so far, doing a good job at offsetting the strong drag from manufacturing,” Hayes said.
“However, based on survey data so far in the fourth quarter, a contraction in economic output seems highly plausible as we head into year-end.”
The PMI data showed new export orders grew at the slowest pace in five months as firms said they saw a fall in demand from South Korea and Russia, among other destinations.
To keep Japan’s fragile recovery intact, the government is preparing an economic stimulus package worth $120 billion, two sources with direct knowledge of the matter told Reuters on Tuesday.
The world’s third-biggest economy ground to a near standstill in the third quarter with growth at its weakest in a year as the U.S.-China trade war and soft global demand knocked exports.
The worry for policymakers is that after a sales tax hike, which kicked in on Oct. 1, private consumption could also be knocked hard and put a choke hold on the economy.
The composite PMI, which includes both manufacturing and services, shrank for the second straight month in November, though the pace of contraction was slower than in the previous month.
The index rose to 49.8 from October’s final 49.1.
Reporting by Daniel Leussink; Editing by Shri Navaratnam