Business / Economy

Japan factory output and retail sales slump as pandemic hits autos

REUTERS

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.

Global activity ground to a halt in April as government-imposed lockdowns due to the pandemic disrupted supply chains and led consumers to postpone many purchases, putting a damper on the outlook for the world’s third-largest economy.

Official data Friday showed factory output slipped 9.1 percent 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 output declines due to weak global demand.

That was a much larger decline than the 5.1 percent 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.

“Conditions among manufacturers particularly in the auto sector are severe, but production has already restarted in China and I think that they will be resumed in the United States and Europe as well,” said Economy Minister Yasutoshi Nishimura after the release of the data.

Nissan Motor Co. plans to slash production capacity and model range by about a fifth to help cut costs by ¥300 billion ($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 and encouraged consumers to stay home.

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

The gloomy data comes after Japan’s export-reliant economy fell into recession for the first time in 4½ years in the first quarter.

The government this week lifted the state of emergency and approved a second ¥117 trillion ($1.1 trillion) stimulus package, bringing the total pledged to save the economy from the pandemic to more than ¥230 trillion, or about 40 percent of gross domestic product.

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, which is more than twice the size of GDP.

The largest component of the government’s new stimulus package was a loans program 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 midsized firms remained much-needed to reduce the risk of employment conditions worsening.

The April jobless rate rose to 2.6 percent, its highest since December 2017, while the number of nonregular workers posted the biggest year-on-year drop on record.

Job availability slipped to 1.32, its lowest since March 2016.

Analysts said job 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 percent in May, followed by a 3.9 percent rise in June.

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