TOKYO (Reuters) - Japanese manufacturing activity grew at the slowest pace in 29 months in January as export orders shrank sharply, a business survey showed on Friday, adding to signs that the U.S.-China trade war is inflicting more pressure on the slowing global economy.
The final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) fell to 50.3 on a seasonally adjusted basis from 52.6 in December, though it was up slightly from a preliminary reading of 50.0.
The index remained just above the 50 threshold that separates contraction from expansion on a monthly basis, but weakening exports and output suggest it could soon swing into contraction.
The grim factory readings from the world’s third-largest economy “brought bad news for the global trade cycle at the start of 2019, with new export orders falling at the sharpest rate in two-and-a-half years,” said Joe Hayes, Economist at IHS Markit, which compiles the survey.
“Anecdotal evidence suggested that sales of goods relating to semi-conductors had particularly suffered, which bodes ill for other Asian exporters.”
The final index for new export orders was 46.0, down slightly from a preliminary reading and showing the fastest contraction in 2-1/2 years. Some survey manufacturers reported fewer sales to China and the United States.
Weaker demand from domestic and international customers prompted Japanese manufacturers to cut output for the first time in 2-1/2 years and to scale back purchases of raw materials and other inputs.
Business confidence weakened for the eighth month in a row.
Japan’s export-oriented economy is sensitive to changes in global demand, particularly in neighboring China, its largest trading partner. The Sino-U.S. trade war has disrupted supply chains on both sides of the Pacific, particularly for electronics.
Japan’s exports in December fell the most in more than two years and there are worries they will fall even further if the U.S. carries out its threat to raise tariffs on Chinese goods on March 2 if a trade deal cannot be reached in current negotiations.
The outlook for domestic demand in Japan was already looking shaky this year, with a sales tax hike planned for October.
Analysts polled by Reuters say the chances of a slide into recession are growing, though most believe the country will still eke out very modest economic growth in the coming fiscal year.
Reporting by Stanley White; Editing by Kim Coghill