Major companies became less confident about business conditions in the January-March quarter as manufacturers were hit by high oil prices, pushing the key confidence index down for the first time in four quarters, a government survey showed Monday.

The index of business conditions at companies capitalized at 1 billion yen or more came to 6.1 on an all-industry basis, down from 10.5 the previous quarter, the joint Cabinet Office and Finance Ministry survey says.

The poll also shows nonmanufacturers were affected by the cold winter, leading to falls in the number of people dining out and visiting amusement parks.

Despite the deterioration in business confidence, government officials and private-sector economists believe the economic recovery will continue, citing firm domestic demand.

“I don’t think the drop in the index will make us alter the judgment that the economy remains on a recovery track,” said Hitoshi Asaoka, an economist at Mitsubishi Research Institute. “The only concern would be persistent highs in raw materials prices, although I don’t expect oil prices to post sharp gains from current levels.”

Looking ahead, the survey said the business confidence index for large companies is projected to hit 8.3 for the April-June quarter and 11.3 for the July-September quarter on an all-industry basis.

The index is compiled by subtracting the percentage of companies reporting deteriorating business conditions from that of firms reporting improving conditions.

The index for large manufacturers came to 3.1 in the January-March period, down from 10.5 the previous quarter, for the first drop in four quarters.

The index for major nonmanufacturers eased to 7.9 from 10.5, down for the second straight quarter.

By sector, the index for restaurants and the lodging industry entered negative territory by plunging to minus 11.3 from 21.7. The index for the entertainment industry also slumped, dropping to minus 6.9, from 16.9.

The index for large steelmakers slid to minus 22.9 from minus 1.2, reflecting China’s growing production capacity.

For midsize companies — defined as those capitalized at over 100 million yen but under 1 billion yen — the all-industry business confidence index slumped to minus 0.8 from 5.2.

The index for small companies — those capitalized over 10 million yen but under 100 million yen — worsened to minus 11.4 from minus 6.4.

Looking ahead, the business confidence index for large manufacturers is projected to reach 6.8 for the April-June quarter and 9.7 for the July-September quarter.

The index for midsize companies is forecast at 6.5 for the April-June quarter and 10.9 for the following quarter.

The index for small companies is estimated at minus 4.8 and minus 1.8, respectively.

Companies of all sizes expect to log an 11.1 percent year-on-year increase in capital spending for fiscal 2005, which ends Friday, representing a downward revision from the 11.8 percent growth projected in the previous survey.

Manufacturers expect to see their expansion of capital spending for fiscal 2005 to end up at 15.3 percent, while nonmanufacturers expect 8.6 percent.

Companies project 3.6 percent growth in pretax profits for the year, revised downward from the 6.8 percent expansion forecast in the preceding poll.

The survey, conducted Feb. 25, covered 11,300 companies.

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