TOKYO (Reuters – Japan’s services sector saw its lowest activity in February in almost two years. The survey was conducted on Thursday. It came after a spike in Omicron coronavirus infections.

Japan’s policymakers are facing a difficult task in stimulating consumer spending in order to maintain a fragile recovery as uncertainty from the economy worsens with the Ukraine crisis and disruptions in supply.

The au Jibun Bank Japan Services Purchasing Managers’ Index(PMI) dropped to a seasonally adjusted 44.2, down from the previous month’s 47.6, which was the fastest rate contraction since May 2020.

Even though activity was well below 50, it still distinguished contraction and expansion. However, this reading was higher than the seasonally adjusted 42.7 flash.

According to Usamah Bhatti (economist at IHS Markit), “Activity declined at the fastest pace since August last year.”

Overall input prices rose in this sector for the 15th month straight. This was due to higher fuel costs and increased raw materials, but it didn’t mean they were charging more for their services, as coronavirus cases surged.

Bhatti said that firms tried to spur demand with price discounting, even though there was an increase in the average cost burdens.

The composite PMI (which is calculated using manufacturing and services) fell to 45.8 in February’s final of 49.5, contracting at its fastest pace for 18 months.

According to a Reuters poll, the third largest economy in the world will see its growth slow to a halt over the next quarter. It is likely to grow an annualised 0.4% as supply and coronavirus bottlenecks impact overall activity.