Japan's Aug service sector activity shrinks at fastest pace since May 2020 - PMI

FILE PHOTO: Pedestrians wearing protective masks amid the coronavirus disease (COVID-19) outbreak, walk on a street in Tokyo, Japan, February 2, 2021. REUTERS/Kim Kyung-Hoon/File Photo

TOKYO (Reuters) - Japan's services sector activity contracted at the fastest pace in over a year in August as a resurgence of COVID-19 cases dealt a blow to the world's third-largest economy's recovery.

Activity and new business inflows shrank at the fastest pace since May last year, with businesses hit by a resurgence of COVID-19 infections and expanded emergency curbs.

The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) plummeted to a seasonally adjusted 42.9 from July's 47.4, worse than a 43.5 flash figure.

"Japanese service sector businesses signalled an accelerated deterioration in business conditions in August," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

"The resurgence of COVID-19 infections due to the Delta variant also led to a steeper reduction in incoming business."

A surge in Delta infections forced Japan's government to expand state of emergency curbs to more prefectures in August, hurting activity even as many defied orders not to go out and to avoid crowded places.

The reading marked the 19th month that services activity came in below the 50.0 threshold that separates contraction from expansion, the longest such streak since a 27-month run through March 2010.

The final au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, dropped to a one-year low of 45.5 from July's final of 48.8.

"Confidence about the outlook for private sector activity remained strong in August, although the risks are skewed to the downside," Bhatti said.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

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