Japan's factory output slows, plunge seen as virus grips economy

Japan’s industrial output rose in February at a slower pace than the previous month and factories expect production to plunge in March, adding to growing signs the coronavirus pandemic is taking a toll on an economy already on the cusp of recession.

While retail sales held up, job availability fell to a near three-year low in February in a sign the economy was losing momentum even before the fallout from the virus outbreak widened in March.

Analysts say the full impact of the pandemic will start to appear in data for March and beyond, which some say could show Japan on course for a deep stagnation, reports Reuters.

“Today’s data does not take into account the impact of a global wave of lockdowns that began in mid-March,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Global economic activity is shut down, so a plunge in exports and output is inevitable,” he said. “Japan’s economy will contract more deeply in April-June than in the first three months of this year, and may not bounce back quickly.”

Factory output rose 0.4 per cent in February, government data showed on Tuesday, exceeding a median market forecast for a 0.1 per cent gain but slower than the 1.0 per cent increase in January.

Automakers and machinery manufacturers suffered output declines mainly due to factory shutdowns in China, which led to delays in procuring parts, a government official told reporters.

Manufacturers surveyed by the government expect output to fall 5.3 per cent in March and increase 7.5 per cent in April, the data showed.

The forecasts may prove too optimistic as they were taken in early March, when companies had less clarity on the extent of damage from the pandemic, a government official told a briefing.

Separate data showed retail sales rose 1.7 per cent in February from a year earlier, as weak department store sales were offset by brisk demand for food and beverages by households staying home due to the virus.

The data underscores the challenge Prime Minister Shinzo Abe faces in preventing the pandemic from wiping out the benefits his “Abenomics” stimulus policies have brought to the economy.

Abe has pledged a huge stimulus package that would be bigger than one launched during the global financial crisis to cushion the outbreak’s hit to growth.

Behind calls for big spending are growing signs of the pain felt by retailers and households.

The jobs-to-applicants ratio fell to 1.45 in February from 1.49 in January, labour ministry data showed, marking the lowest level in nearly three years.

The new virus has infected more than 700,000 people and killed about 35,000 around the world, while disrupting global trade, tourism and supply chains and prompting city lockdowns.

In Japan, a rise in domestic coronavirus cases has stoked worries of tougher social distancing restrictions, while a decision to postpone the Tokyo Olympics Games threatens to push the fragile economy into recession.

Japanese automakers like Toyota Motor have announced factory shutdowns across the globe, including at domestic plants, due to slumping demand and supply chain disruptions.

The world’s third-largest economy shrank an annualised 7.1 per cent in the three months through December due to the hit from last year’s sales tax hike and the US-China trade war.

Analysts expect the economy to contract again in the first quarter, meeting the technical definition of a recession.