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Business & Finance

Japan's factory, retail sectors slump as pandemic hits auto sector

That was a much larger decline than the 5.1% drop in a Reuters forecast. TOKYO: Japan’s factory output sl
29 May 2020
  • That was a much larger decline than the 5.1% drop in a Reuters forecast.

TOKYO: Japan’s factory output slid faster-than-expected and retail sales tumbled the most in more than two decades in April, as the coronavirus pandemic wrecked both foreign and domestic demand for the country’s autos and other manufactured goods.

The bad numbers suggest the recession seen in the world’s third-largest economy over the six months to March is likely to deepen in the current quarter as government-imposed lockdowns disrupted supply chains and kept consumers shut in at home.

Official data on Friday showed factory output slipped 9.1% in April from the previous month, the biggest drop since comparable data became available in 2013 as automakers and iron and steel manufacturers suffered sharp declines.

That was a much larger decline than the 5.1% drop in a Reuters forecast.

“Output will probably pick up from June onwards but it will be necessary to remain on guard for a second wave (of coronavirus infections),” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The pace of a rebound will likely continue to be sluggish.”

Automaker production fell by a third from the previous month. That led the government to downgrade its description of overall production to “decreasing rapidly” for the first time since November 2008, from just “decreasing” previously.

Nissan Motor Co plans to slash production capacity and model range by about a fifth to help cut costs by 300 billion yen ($2.79 billion), following a slide in sales, the automaker said on Thursday.

Separate data showed retail sales tumbled at their fastest pace since March 1998 as the nationwide state of emergency led service-sector businesses such as restaurants to close.

Retail sales plunged 13.7% in April from a year earlier, heavily weighed by slumping demand for general merchandise, clothing and vehicles.

The gloomy data comes after Japan’s economy fell into recession for the first time in 4-1/2 years in the first quarter.

The government this week lifted the state of emergency and approved a second $1.1 trillion stimulus package, bringing the total pledged to save the economy from the pandemic to $2.2 trillion.

JOBLESS RATE EDGES UP

Japan was already trying to shake off weak demand before the outbreak after the government raised the nationwide sales tax to repair its public debt burden.

The largest component of the government’s new stimulus package was a loans programme for smaller firms in immediate need of cash to keep the lights on.

Other government data on Friday showed worsening conditions in the jobs market, suggesting such support for small- and mid-sized firms remained much-needed to prevent further losses.

The April jobless rate rose to 2.6%, its highest since 2017, although well-off the rates in other developed nations, where unemployment is approaching depression-era levels.

However, economists say the official unemployment rate masks the full extent of the pain. Among those categorised as employed, those in furlough more than tripled to 4.2 million in April from March.

While many furloughed staff will eventually return to work, their inclusion in April’s unemployment figures would suggest a rate of 11.4%, Dai-ichi Life Research Institute said.

The number of non-regular workers posted the biggest year-on-year drop on record. Job availability slipped to 1.32, its lowest since March 2016.

Analysts said jobs pain is mostly concentrated in the service sector as opposed to automakers, which were hit badly during the 2009 global financial crisis.

“If demand around cars doesn’t recover, there’s a possibility employment conditions in the manufacturing sector will worsen more going forward,” Minami said.

The factory output data showed manufacturers surveyed by the government expect output to fall another 4.1% in May, followed by a 3.9% rise in June.

 

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