TOKYO (Reuters) – Japan’s factory activity extended its fall in December as a prolonged decline in output and new orders threatened to tip the economy into contraction in the current quarter.
The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) edged down to a seasonally adjusted 48.8 from a final 48.9 in the previous month.
The index stayed below the 50.0 threshold that separates contraction from expansion for an eighth month.
If the final reading due early next year also shows a contraction, it will mark the longest such run since a nine-month stretch to February 2013.
The key output and new orders indicators have remained in contraction for the entire year, indicating prolonged strains in factory activity.
New export orders shrank for a 13th month, though they showed signs of bottoming out as the pace of decline was the slowest in a year.
The decline in manufacturing poses a growing headache for policymakers counting on robust demand at home to prop up slowing growth, with consumer spending taking a hard hit from October’s sales tax hike.
Separate data showed activity in Japan’s services sector improved for a second month in December, but the rise was too small to make up for the slump in manufacturing activity.
“The most disconcerting takeaway from fourth quarter survey data has been the marked loss of momentum in the service sector,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“It is now clear that the service sector is unable to offset the industrial weakness, which does not bode well for growth prospects in 2020.”
Policymakers have already taken steps to address the rising outlook risks, with the cabinet approving a $122 billion fiscal package to support stalling growth in the world’s third-largest economy.
The Jibun Bank Flash Japan Services PMI index came in at a seasonally adjusted 50.6 from the previous month’s 50.3.
However, the reading remained below much higher levels seen during the first nine months of the year, in August hitting a nearly two-year high of 53.3.
The Jibun Bank Flash Japan Composite PMI was steady from the previous month’s final of 49.8.
(Reporting by Daniel Leussink; Editing by Sam Holmes)