Japanese industrial production is collapsing, a worrying sign for the economy | Business and economy

Factory output fell 1.3% in April as lockdowns in China and war in Ukraine weighed on manufacturers.

Output at Japanese factories fell sharply last month as China’s draconian “zero COVID” policies and supply chain lockdowns hampered manufacturing and reduced growth prospects for the world’s third-largest economy.

Factory output fell 1.3% in April from the previous month, government data showed on Tuesday, amid a sharp decline in the manufacture of items including electronic parts and machinery.

The weak figures, which mark the first drop in three months, came a day after Toyota Motor Corp missed its global production target for April after output fell more than 9% year-on-year.

Toyota, the world’s largest automaker by sales, last week lowered its global production target for June while signaling the possibility of drastically cutting output for the full year.

Shigeto Nagai, head of Japan’s economy at Oxford Economics, told Al Jazeera he sees falling domestic demand, particularly private consumption, as a bigger risk to Japan’s economy than a slowing global economy. industrial activity.

“Although we are now seeing an impressive recovery driven by pent-up demand, the strength of consumption will be severely limited by a sharp squeeze in real household income caused by a combination of higher inflation and stagnant growth in wages,” Nagai said.

“Yen weakness is also clearly negative for households and consumption, which is expected to take the lead in the coming recovery from coronavirus.”

Despite slowing industrial activity, retail sales and unemployment figures showed healthy gains.

Retail sales posted the strongest rise in nearly a year as consumers increased spending after the government eased COVID-19 restrictions, despite rising inflation threatening to undermine demand . Retail sales rose 2.9% in April, the biggest jump since May 2021 and well ahead of market forecasts. The unemployment rate was 2.5%, the lowest in more than two years.

“We need to be on the lookout for tighter labor market conditions leading to wage growth, which is the key the Bank of Japan is looking for to gauge a sustained inflation trend,” the economists said. of ING in a note.

As Japan’s service sector rebounded from the COVID-19 pandemic, manufacturing faced disruption and rising material prices due to ongoing lockdowns in China and Russia’s war in Ukraine. .

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect production to return to growth in May, with growth of 4.8%, followed by a rise 8.9% in June.

“I believe the slowdown in industrial production today is temporary, primarily reflecting disruptions to 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 shutdowns for a few more months, but will pick up momentum thereafter. We have little concern about the outlook for Japanese manufacturing amid strong demand for high-end capital goods and automobiles. The weak yen will also support exports.