Japanese factory production hammered by supply problems, leaves economy faltering

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Smoke rises from a factory at sunset in the Keihin Industrial Zone in Kawasaki, Japan on January 16, 2017. REUTERS / Toru Hanai / File Photo GLOBAL BUSINESS WEEK AHEAD

  • September production drops more than expected
  • Auto production drops 28.2% m / m in September
  • Manufacturers see production increase in October and November

TOKYO, Oct.29 (Reuters) – Production at Japanese factories fell for the third consecutive month in September as the auto sector hit by a persistent global supply shortage, increasing the risk of an economic contraction in the third quarter and questioning the recovery.

Production disruptions in Asia and slower growth in China have clouded prospects for the world’s third-largest economy, which has depended heavily on exports to boost growth as the COVID-19 pandemic has hurt domestic demand.

“There is a risk that the third quarter gross domestic product will turn negative,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“Capital goods shipments have declined. This suggests that business investment has not increased.”

Factory output fell 5.4% in September from the previous month, according to official data on Friday, affected by lower production of cars as well as general-purpose machinery.

This means that production fell for the third consecutive month, after falling 3.6% in August and 1.5% in July.

It is the largest month-over-month decline since a 6.5% drop in May, and smaller than a 3.2% loss predicted in a Reuters poll of economists.

Seven of Japan’s eight automakers saw global production plummet in September as the global shortage of parts and chips weighed on the industry. Read more

Toyota Motor (7203.T) said on Thursday it saw global production drop 39.1% in September from a year earlier, as cuts by automakers also begin to affect suppliers.

Data on Friday showed that production of cars and other motor vehicles fell 28.2% from the previous month in September, down for the third month in a row, while its shipments fell by 32.5 % month-on-month.

The data showed that overall inventories rose 3.7% from the previous month, their biggest gain since comparable data became available in 2015, which likely offset some of the weak production in the third quarter and possibly exports.

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The government is due to release a preliminary estimate of gross domestic product for July-September on November 15.

“In the third quarter, manufacturing output fell 3.7% quarter-on-quarter,” said Tom Learmouth, Japanese economist at Capital Economics.

This contraction “presents clear downside risks in our view that quarterly gross domestic product growth was zero in the last quarter,” he said in a note.

Data on Friday showed that manufacturers polled by the Ministry of Economy, Trade and Industry (METI) expected a rebound in production, forecasting a 6.4% gain in October and 5.7% in November.

A government official has warned that production may not increase as much as expected as concerns about chip and parts shortages persist.

However, Norinchukin’s Minami said a recovery in sentiment in the service sector after the government eased restrictions on coronaviruses was likely to support the economy in the coming months.

Separate data showed the unemployment rate remained stable from the previous month at 2.8%, while an index measuring job availability edged up to 1.16 from 1.14 in August.

On the inflation front, the Tokyo consumer price index, which includes petroleum products but excludes fresh food prices, rose 0.1% in October from a year earlier, in increase for the second consecutive month, according to government data.

Reporting by Daniel Leussink and Kantaro Komiya; Additional reporting by Kentaro Sugiyama; Editing by Sam Holmes, Gerry Doyle and Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.


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