Factory production falls 1.3 percent in April as China’s lockdowns and the Ukraine war weigh on manufacturers.
Japan’s factory output fell sharply last month as China’s draconian “zero COVID” policies and supply chain blockages hampered manufacturing and dampened prospects for growth in the world’s third-largest economy.
Factory production fell 1.3 percent in April compared with the previous month, government data showed on Tuesday, amid steep declines in the manufacture of items including electronic parts and machinery.
The weak figures, which mark the first decrease in three months, came a day after Toyota Motor Corp missed its global production target for April after output declined more than 9 percent year-on-year.
Toyota, the world’s biggest carmaker by sales, last week downgraded its global production target for June while signalling the possibility of slashing production for the whole year.
Shigeto Nagai, head of Japan economics at Oxford Economics, told Al Jazeera he sees waning domestic demand, especially private consumption, as a bigger risk to Japan’s economy than slowing industrial activity.
“Although we are now seeing an impressive recovery driven by pent-up demand, the strength of consumption will be severely constrained by a sharp squeeze in real household income caused by a combination of higher inflation and stagnant wage growth,” Nagai said.
“The weak yen is also clearly a negative to households and consumption, which is supposed to take a lead in the coming recovery after the coronavirus.”
Despite slowing industrial activity, separate retail sales and unemployment figures showed healthy gains.
Retail sales posted the largest rise in nearly a year as consumers ramped up spending after the government eased COVID-19 restrictions, despite rising inflation that threatened to sap demand. Retail sales grew 2.9 percent in April, the biggest jump since May 2021 and well ahead of market forecasts. The jobless rate stood at 2.5 percent, the lowest in more than two years.
“We ought to be on the watch for tighter labour market conditions leading to wage growth, which is the key that the Bank of Japan has been looking for to gauge a sustainable inflation trend,” ING economists said in a note.
While Japan’s services sector has rebounded from the COVID-19 pandemic, manufacturing has faced disruptions and higher material prices due to China’s ongoing lockdowns and Russia’s war in Ukraine.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect output to return to growth in May, growing 4.8 percent, followed by a 8.9 percent advance in June.
“I think the slowdown in industrial production today is temporary mainly reflecting disruptions in supply chains and production activities by COVID-related lockdowns in China,” Nagai said.
“Japan’s exports and production will continue to be affected by the lockdowns for another few months but will regain momentum thereafter. We have limited concern about the prospect of Japan’s manufacturing activities amid strong demand for high-end capital goods and autos. The weak yen will also help exports.”
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(Bloomberg) — China’s economy showed further signs of improvement in June with a strong pickup in services spending as Covid outbreaks and restrictions were gradually eased.
The official manufacturing purchasing managers index rose to 50.2 from 49.6 in May, the National Bureau of Statistics said Thursday, slightly below the median estimate of 50.5 in a Bloomberg survey of economists. It was the first time since February that the index was above 50, indicating expansion in output compared with May.
The non-manufacturing gauge, which measures activity in the construction and services sectors, climbed to 54.7, the highest in more than a year and well above the consensus forecast of 50.5.
China’s CSI 300 Index rose as much as 0.9% while major stock gauges in Asia broadly fell.
Government restrictions to contain Covid outbreaks have gradually eased over the last month. The financial hub Shanghai lifted its two-month lockdown at the start of June by allowing more shops to reopen, more factories to resume production, and for port operation to pick up.
The data suggests “the pace of recovery accelerated as the Covid situation stabilized,” said Peiqian Liu, chief China economist at NatWest Group Plc. There was a “broad based but still soft recovery in both production and new orders,” and the figures show the rebound is still milder compared with the recovery from the Wuhan lockdown in 2020, she said.
Some 19 of the 21 sectors in the service sectors tracked in the survey returned to expansion last month, up from just six in the previous month, according to the NBS. Gauges of sectors previously hit badly by the outbreaks all improved, such as railway transport, air transport, accommodation, catering and entertainment.
The recovery remains fragile though as the country sticks to its Covid Zero strategy, meaning restrictions could be tightened if outbreaks of the highly transmissible omicron variant flare up again. Chinese President Xi Jinping reaffirmed his Covid Zero policy this week, saying it was the most “economic and effective” for the country.
Economists, meanwhile, are holding firm on their gross domestic product growth forecasts for this year. The median projection in a Bloomberg survey for 2022 growth is 4.1%, well below Beijing’s annual target of around 5.5%. Bloomberg’s aggregate index of eight early indicators showed some improvement in June, though the recovery remains muted.
(Updates with additional details)
©2022 Bloomberg L.P.
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