Japanese firms braced for drawn-out coronavirus hit as recession looms

Almost half of Japanese firms saw their output and sales slide last month because of the coronavirus outbreak, with two-thirds anticipating the impact from the pandemic to last several months or longer, a Reuters poll showed, portending a big blow to an economy teetering on the edge of recession.

The spreading epidemic has hammered global stock markets and disrupted trade, supply chains and tourism, stoking fears of a global downturn and piling pressure on governments and central banks to deploy stimulus.

A prolonged impact on corporate Japan could hamper Prime Minister Shinzo Abe’s Abenomics aim of generating a self-sustaining growth cycle led by private-sector investment and spending.

The Reuters Corporate Survey found 47 percent of Japanese firms saw their profits and output being affected by the virus outbreak, with 42 percent suffering from declines of up to 30 percent in February.

In written comments, many companies complained about the closing of factories in China, event cancellations, a slump in tourism and declining trade with top partner China.

On the other hand, some managers in industries including retail saw sales jump as consumers rushed to stock up on daily necessities such as toilet rolls, masks and groceries.

“China-bound demand is falling because clients’ factories there are running at utilisation of 50 percent to 70 percent,” wrote a manager at a paper and pulp-maker. “We are trying to replace the production base with factories in other countries, but output has not returned to the same level as before.”

A machinery-maker manager wrote, “Our clients are trying to avoid receiving services as much as possible, which has reduced points of our contact with customers” worried about infections.

The Reuters Corporate Survey, conducted from March 2 to 12 for Reuters by Nikkei Research, canvassed 501 big and midsize nonfinancial companies. Roughly half answered questions on the new virus’s impact on condition of anonymity to express opinions freely.

About half of the companies said their supply chains have been affected by the fallout from the virus outbreak and that they have reviewed or are considering reviewing their supply chain.

Some are eyeing alternative production bases in countries such as Vietnam and Thailand. Many faced a shortage because of supply chain disruptions, with about 70 percent facing a shortfall of up to 10 percent.

“We will wait until things return to normal because it’s difficult to shift away from China considering costs and distribution networks,” a retail manager wrote.

About 43 percent of firms said it would take several months for the virus impact on their business to be resolved, and another 22 percent saw no end to it for the foreseeable future, the poll showed, in a sign corporate Japan is bracing for a long battle with the virus.

One wholesaler manager expected the virus impact to last for several months, saying, “it’s wishful thinking. Without prospects for early resolution, it would be a serious blow to all industries.” An industrial rubber-maker manager wrote, “As long as there’s no cure, we have no choice but to say there’s no hope for resolution.”

Japan’s economy, the world’s third-largest, shrank at its fastest pace in six years in the December quarter, and risks from the coronavirus pandemic could push the economy into recession this quarter.

Asked about the need for government support, strengthening of medical facilities and prevention of infections are the top choices, picked by about 60 percent of firms, followed by an economic package, chosen by 18 percent.

“We must ban entry of Chinese and South Koreans into Japan. It’s insane to focus on economic impact at a time of life-and-death crisis,” a wholesaler manager wrote in response to the survey.

“We must refer to Taiwan to adopt swift, concrete and effective steps,” a transport equipment-maker manager wrote. An industrial rubber-maker manager said, “It’s too late.”