— Consumption, Factory Output Downgraded While Exports on Track
By Max Sato
(MaceNews) – Japan’s government Thursday provided a more cautious view of the recent pickup in the domestic economy, saying its pace is slowing in the face of global supply chain disruptions and a surge in coronavirus cases, according to its monthly report released by the Cabinet Office.
The government said the economy continues to show “movements of picking up” despite severe conditions caused by the pandemic, but added that “its pace has weakened.” It is the first downgrade in four months. Previously, it said that “weakness is growing in some areas.”
As for overseas economies, the government maintained its overview, saying they are “picking up, although severe conditions remain in some regions” due to the pandemic.
The government revised up its views on the Eurozone and Germany for the first time in two months while downgrading its assessment on Thailand for the second consecutive month in light of rising Covid-19 cases.
On the near-term outlook, the government repeated its recent statement on Japan, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.”
But it also warned about “higher downside risks” posed by the spread of the pandemic as well as the drag from supply chain constraints, highlighting the difficulties of procuring parts and materials facing some producers.
Key points from the monthly report:
The government downgraded its view on private consumption, which accounts for about 55% of the gross domestic product, for the first time in four months. It said consumption is “showing weakness,” compared to the previous statement that it was “in a weak tone, particularly in the service sector.”
Spending on eating out and traveling remains sluggish during the pandemic. Expenditures on goods have been generally solid but sales of new vehicles and electrical appliances lost steam in recent weeks. Delayed deliveries of parts have forced manufacturers to lower output and shipments.
The latest monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Aug. 25 until Aug. 31 and released last week, showed sentiment deteriorated in light of a resurgence in coronavirus cases.
The Watchers’ sentiment index for Japan’s current economic climate posted the first month-on-month drop in three months in August, plunging 13.7 points to a seven-month low of 34.7 on a seasonally adjusted basis, after edging up 0.8 point to 48.4 in July.
Heavy rains in mid-August caused damage and disrupted traffic in many regions while the government expanded the areas under strict Covid restrictions last month.
Looking ahead, the Watchers outlook index, which shows sentiment about the situation two to three months ahead, marked the second consecutive monthly decline, falling 4.7 points to 43.7, also the lowest since January, after dropping 4.0 points to 48.4 in July.
In addition to concerns about the negative impact of rising Delta variant infections on shopping and traveling, some firms said they are struggling to secure parts amid global supply chain disruptions.
Japanese exports have stayed on a gradual recovery trend, but industrial production, particularly of automobiles, has been hit by global semiconductor shortages and delayed parts supplies from Southeast Asia, where the pandemic is leading to lockdowns in some areas.
This prompted the government to revise down its assessment of production for the first time in 17 months, saying it is “picking up, although some weakness is seen.” Previously, it said production was “picking up.”
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* Private consumption “is showing weakness” vs. “has been in a weak tone, particularly in the service sector” (the first downgrade in four months; last downgraded in May 2021; upgraded in October 2020).
* Business investment is “picking up” (unchanged; upgraded in April 2021; downgraded in November 2020).
* Housing construction is “firm” (the first upgrade in three months; last upgraded in June 2021; downgraded in September 2019).
* Exports are showing a “continued increase at a slow pace” (unchanged; upgraded in December 2020; downgraded in March 2021).
* Industrial production is “picking up, although some weakness is seen” vs. “picking up” (the first downgrade in 17 months; last upgraded in November 2020; downgraded in April 2020).
* Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19 (unchanged; upgraded in August 2021; downgraded in April 2020).
* Business sentiment is “showing movements of picking up, although some severe aspects remain” (unchanged; upgraded in July 2021; downgraded in May 2021).
* Employment conditions are improving with some soft spots (unchanged; upgraded in September 2020; downgraded in May 2020).
* Consumer prices are “firm” (unchanged; last changed to “firm” from “flat” in August 2021; downgraded in March 2020).