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Japan’s factory output slid sharply in May, as semiconductor shortages dented car production and manufacturers of all kinds pulled back amid yet another round of restrictions to contain the COVID-19 pandemic.

Industrial production plunged 5.9% from April’s level, the trade ministry reported Wednesday. The figures were several percentage points worse than even the most pessimistic forecast among 30 surveyed analysts, the median projection having been for a 2.1% drop.

Despite the worse-than-projected figures, the ministry stuck to its assessment that production is picking up. Manufacturers surveyed in the report said they plan to ramp up output this month by 9.1%, and economists said May’s output drop probably had more to do with supply constraints than a falloff in demand.

Still, fears of a double-dip recession could grow if production gains don’t materialize in June.

With consumers held back by continued restrictions to contain the novel coronavirus, Japan needs factory output and exports this quarter in order to eke out growth after shrinking in the first three months of this year.

“Supply-side constraints are dragging down production, but the forecasts for June and July aren’t weak,” said economist Hiroaki Muto at Sumitomo Life Insurance Co. “I see autos hobbling along for a while more because of this, but demand itself is strong.”

Surging car exports, with year-on-year shipments doubling last month, have been a key prop to the economy this year amid on-again-off-again virus restrictions that have hurt consumer spending.

Plunging car production in May suggests those key shipments could also start to soften in months ahead.

The sharp drop in auto production also signals that chip shortages may have finally started to squeeze Japan’s automakers, after deft inventory management by Toyota in particular had seemed to be helping minimize damage. Toyota’s total domestic output of about 274,000 units in May was down by more than 100,000 vehicles from two years earlier, before the pandemic hit.

The outlook is expected to improve once supply bottlenecks clear and Japan’s accelerating vaccine drive helps revive domestic demand.

Thursday’s tankan survey by the central bank is forecast to show sentiment among big product makers jumping as companies start to see past the pandemic.

“The deeper-than-expected drop in Japan’s May industrial production reflected a hit from the extended state of emergency to contain the virus,” said Yuki Masujima, economist at Bloomberg Economics. “Weaker domestic demand overwhelmed support from exports, which have remained strong.”

Output dropped almost across the board, falling in 13 out of 15 industry categories, with vehicle production dropping by nearly a fifth and accounting for about half of the overall decline.

Production advanced 22% from a year ago, when panic over the pandemic was at its worst. Analysts had forecast a 27% gain.

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