Business confidence plunged to decade lows in March as the spreading coronavirus outbreak stoked fears of a global recession and sent stock markets tumbling, according to the Reuters Tankan survey.
The monthly poll, released Tuesday, suggests that the Bank of Japan’s tankan quarterly survey due April 1 will show a sharp deterioration in business sentiment among both manufacturers and nonmanufacturers.
The global spread of the virus has hammered world trade, supply chains and tourism, dealing a heavy blow to Japan’s fragile economy, which was already teetering on the edge of recession.
The souring business mood could derail capital spending, one of the few bright spots in the economy. That will heap pressure on the government and the central bank to deploy more stimulus measures.
Japanese shares erased early losses Tuesday to end slightly higher, with the 225-issue Nikkei average snapping a four-day losing streak with the help of expected BOJ purchases of exchange-traded funds.
The BOJ on Monday eased monetary policy by pledging to buy riskier assets such as ETFs at double the current pace, joining global central banks in combating the widening economic fallout from the epidemic.
All manufacturers across industries were pessimistic about business conditions, according to the Reuters poll of 501 large and midsize nonfinancial companies, of which 242 firms responded on condition of anonymity.
Among service sector firms, no firms except those in real estate/construction and information/communications were optimistic.
Most of the companies expressed fear of the virus’s impact on their business, on top of already weak consumer spending due to the October consumption tax hike and sluggish global demand aggravated by the U.S.-China trade war.
“We cannot see how much impact the virus may have on our business in March. We fear sharp drops in sales,” a manager at a chemicals firm wrote in the survey.
A manager at a machinery company said, “Just as the U.S.-China trade friction seems to be settled for the time being, the new virus is causing worry about downward revision to our profits.”
The sentiment index at manufacturers fell to minus 20 in March from minus 5 in February, while the service sector gauge dropped 25 points to minus 10, the poll showed. A negative figure means pessimists outnumber optimists.
The manufacturers index hit the lowest since December 2009, the depths of the global financial crisis.
Nonmanufacturers were the most pessimistic since June 2011 in the wake of the Fukushima nuclear disaster.
Manufacturers expected to be even more glum in three months’ time, with the index seen falling further to minus 25 in June, while service-sector morale was seen unchanged in June.
The BOJ’s December tankan showed big manufacturers’ mood hit a near seven-year low in the fourth quarter, as the Sino-U.S. trade war curbed external demand and the consumption tax hike to 10 percent from 8 percent dealt a blow to consumer demand.
Japan’s economy, the world’s third-largest, shrank at a 7.1 percent annualized rate in October-December, and many economists see another contraction in the current period, which would spell a technical recession, or two straight quarters of negative growth.