FINWIRES · TerminalLIVE
FINWIRES

Japan's Service Sector Stagnates in May on Surging Costs

By
Japan's Service Sector Stagnates in May on Surging Costs

Japan's service sector stagnated in May as supplier costs surged amid the ongoing conflict in the Middle East.

The S&P Global Japan Services Business Activity Index fell to the neutral 50.0 mark from 51.0 in April, ending a 13-month streak of expansion. A reading of 50.0 indicates no change in business activity from the previous month.

"The ongoing war in the Middle East continued to exert pressure on the economy, most notably by driving a substantial increase in costs for businesses," Annabel Fiddes, S&P Global Market Intelligence's economics associate director, said. "Price indicators in May pointed to a record rise in selling prices for goods and services amid a near unprecedented increase in business costs, largely due to widespread supplier price hikes and supply chain disruption, but also higher labor costs."

Average input prices rose to a 43-month high as the war in Iran triggered a spike in fuel, energy and raw material prices.

In April, Japan's inflation slowed down, with the consumer price index decelerating to a 1.4% rise from the prior month's 1.8% growth, according to data from the Statistics Bureau.

Some survey participants said activity levels rose because of higher sales and new business lines, while others said demand was weak and the growth of new orders slowed down, S&P Global said.

Government data showed that firms' spending during the first quarter was flat. Capital spending dropped 2%, a far cry from the 6.5% growth in the previous quarter, reflecting cautiousness in spending amid the Middle East war, which brought disruption in the global supply chain.

Meanwhile, employment grew at the slowest rate in nine months, S&P Global said. Government data showed that the number of employed people in April rose to 68.8 million from 68.2 million in March, while the unemployment rate eased month on month to 2.5% from 2.7%.

Business sentiment stayed weaker than the post-pandemic trend despite slightly improving for the second straight month, as businesses are concerned over geopolitical uncertainty, rising costs and the ageing population, according to the ratings firm.

Overall, the S&P Global Japan Composite PMI Output Index fell to 51.1 in May from 52.2 in April, pointing to only modest growth in broader private sector business activity.

Related Articles

Thailand's Factory Activity in May Logs Weakest Growth in 12 Months
US Markets

Thailand's Factory Activity in May Logs Weakest Growth in 12 Months

Thailand's manufacturing activity growth slowed to a 12-month low in May as consumer confidence remained fragile amid domestic and external pressures.The headline S&P Global Thailand Manufacturing Purchasing Managers' Index (PMI) slipped to 52.6 from 52.7 in April, S&P Global reported Tuesday.While the figure remains above the neutral 50 mark separating expansion from contraction, it represents the slowest pace of improvement since July 2025.The slowdown was largely driven by sluggish output volumes, which expanded at their weakest rate in a year. Although new orders accelerated slightly compared with the prior month, firms noted persistent consumer hesitancy regarding spending.According to a survey conducted by the University of the Thai Chamber of Commerce, the country's consumer confidence slumped to 50.6 in April from 51.8 in the previous month, the lowest in eight months.Similarly, data provider Ipsos reported that consumer confidence in the first half of the year plunged to near-pandemic lows. The decline was driven by mounting economic pressures and geopolitical tensions, particularly the outbreak of war in Iran, which has disrupted global supply chains."Rising energy prices, cost-of-living concerns and declining confidence are changing consumer behavior in profound ways. As concerns shift, spending, saving and brand choices change as well. Businesses and brands must adapt quickly," said Pimtai Suwannasuk, Ipsos' senior client officer.The Ipsos report, published in May, also highlighted that political corruption remains the absolute top concern among Thai consumers.Consumers face even more pressure as manufacturers pass on elevated raw material and transportation costs, S&P Global noted. As a result, factory gate charges increased even as overall input cost inflation stabilized.External uncertainties continued to strain business capacity, leading to a 10th consecutive month of backlog accumulation, yet manufacturers remain cautious about hiring additional staff.Despite these headwinds, business owners are broadly optimistic, with 21% of survey respondents forecasting a rise in production over the coming year."There were some positive signals for the near-term outlook. Manufacturers anticipate a rise in their output levels during the year ahead, with confidence the highest since February," S&P Global Market Intelligence economic director Tim Moore said.

^SET.BK
Indonesia's Manufacturing Holds Steady in May Amid Supply Strains, S&P Global Says
US Markets

Indonesia's Manufacturing Holds Steady in May Amid Supply Strains, S&P Global Says

Indonesia's manufacturing sector stabilized in May as stronger domestic demand offset persistent supply disruptions and rising input costs, according to data released Tuesday by S&P Global.The S&P Global Indonesia Manufacturing Purchasing Managers' Index rose to 50.0 in May from 49.1 in April.New orders increased for a second consecutive month and at the fastest pace since February, supported largely by stronger domestic demand.Some manufacturers said customers accelerated purchases to build inventories amid rising prices and supply concerns, S&P Global said.Despite improved demand, production fell for the third consecutive month as higher raw material prices and limited availability of inputs weighed on output."Indonesia's manufacturing economy remained under pressure during May, as production was held back by rising raw material prices and limited input availability," Usamah Bhatti, economist at S&P Global Market Intelligence, said."While firms noted a stronger rise in sales, this often reflected efforts by clients to build stock amid price and supply disruption," he added.Average supplier delivery times lengthened for an eighth straight month as shipping disruptions and shortages linked to the Middle East conflict continued to affect supply chains.Input cost inflation accelerated to its second-highest level on record, prompting manufacturers to raise selling prices at the fastest pace since October 2013."Cost inflation accelerated sharply midway through the second quarter and was the sharpest since the series record set in September 2013," Bhatti said."This pushed firms to raise selling prices at the fastest pace for just over 12-and-a-half years."Supply shortages and elevated costs also weighed on purchasing activity, inventories, and employment. Manufacturers reduced purchasing activity and drew down raw material stocks, while staffing levels fell for a third consecutive month.Manufacturers remained optimistic that output would increase over the coming year, although business confidence remained below the long-run survey average amid uncertainty over raw material prices and supply conditions.The survey's elevated cost readings come as Indonesia's inflation outlook becomes more challenging.Economists surveyed by Reuters expect annual inflation to accelerate to 2.97% in May, driven by higher prices for non-subsidized fuel, air travel, and cooking oil.Bank Indonesia raised its benchmark interest rate by an outsized 50 basis points in May, stepping up efforts to stabilize the rupiah and keep inflation within its target range.The rupiah has also come under sustained pressure, repeatedly touching record lows against the dollar as concerns over the economic fallout from the Iran war added to investor worries about fiscal policy, central bank independence, and capital market transparency.Meanwhile, the government has expanded fuel subsidies following the conflict in Iran, helping cushion households from the impact of higher global energy prices.

^JKSE
South Korea's Inflation Surges to Over Two-Year High in May as Fuel Costs Surge
US Markets

South Korea's Inflation Surges to Over Two-Year High in May as Fuel Costs Surge

South Korea's annual inflation rate accelerated sharply to 3.1% in May from 2.6% in April, the highest reading since March 2024, as the Middle East conflict-driven oil shock sent petroleum prices up 24.2% from a year earlier.Analysts expected a 3% rate for the month, according to Investing.com.On a monthly basis, consumer prices were up 0.5%, unchanged from the pace of growth between March and April.The surge in fuel costs was the main driver behind the headline inflation reading. Gasoline prices jumped 23.1% year over year, while diesel prices rose 33.3%, pushing the wider petroleum products category to its largest annual increase since July 2022 during the Russia-Ukraine war.Elsewhere, the prices of food and non-alcoholic beverages jumped 1.6% year over year in May, significantly faster than the 0.3% increase in April. This marked the largest jump in food prices in three months.Meanwhile, the country's annual inflation rate excluding food and energy was 2.5%, compared with the prior reading of 2.2%. Month over month, core consumer prices inched up 0.5%, against the previous 0.3% rise.The Middle East conflict continues to drive global energy prices, prompting the Bank of Korea to maintain its steady interest rate policy during its May meeting. The BoK kept its policy rate unchanged at 2.5%, as widely expected.BoK Governor Shin Hyun-song on Monday said South Korea's strong economic expansion provides the central bank with the flexibility to prioritize inflation control.Speaking at the BoK International Conference in Seoul, Shin highlighted the country's exceptional first-quarter performance, with real GDP rising 3.6% year over year."The growth is very strong here in Korea," Shin was quoted by Korea JoongAng Daily as saying. "First-quarter growth is super strong, especially when measured in terms of gross domestic income rather than gross domestic product.""[Strong economic growth] poses fewer impediments to adjusting monetary policy in light of inflation," Shin reportedly said. "I think it gives us a lot more leeway to conduct monetary policy, and I think, in a very effective way, to address inflation on this occasion."

^KOSDAQKOSPI