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Japan's service sector growth falters in December 2018

Japan's service sector growth dropped to a three-month low in December 2018 amid softer inflows of new orders, data from IHS Markit and Nikkei showed.

The seasonally adjusted business activity index dipped to 51.0 in December 2018 from 52.3 in November 2018. The latest data "pointed to abating demand pressures, as private sector sales increased only mildly on the month," said Joe Hayes, economist at IHS Markit.

Meanwhile, Japan's manufacturing sector production rose in December 2018, partially offsetting the impact of the subdued growth in the dominant service sector. The Nikkei composite output index, which covers services and manufacturing, slipped to 52.0 in December 2018 from 52.4 a month ago.

"Nonetheless, composite level data points to a relatively solid pace of expansion over the last three months of 2018, suggesting that the [fourth-quarter] GDP print should bring a bounce-back in growth," Hayes added. Japan's economy shrank 2.5% on an annual basis in the third quarter of 2018, marking the sharpest contraction since the second quarter of 2014.

Demand in the service sector improved modestly, while new export orders also grew at a marginal pace. Business optimism in the service sector remained close to the 10-month high of November 2018, helped by company expansion, new store openings and other projects in the pipeline.

Input prices increased in December 2018, due to higher transport and labor costs, prompting a rise in output prices.