–Japan Sees Global Economic Pickup But Downgrades China Growth Pace
By Max Sato
(MaceNews) – Japan’s government Friday maintained its cautious view on the pace of domestic economic recovery as global supply chain disruptions linger and export growth slows, 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, although “its pace has weakened.” Last month it downgraded its overview for the first time in four months by adding the pickup is slowing.
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.
But it revised down its view on the Chinese economy for the first time in 18 months, saying its recovery pace has slowed. The official assessment of Indonesia was revised up for the first time in five months.
On the near-term outlook, the government basically 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, while vaccination is promoted.”
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 exports for the first time in seven months, saying they are “increasing at a slower pace.” In its previous statement, it said exports showed “a continued increase at a slow pace.”
Japanese shipments to the world have recovered to pre-pandemic levels. The Cabinet Office export volume index was at 105.7 in August compared to 100 in January 2020, but it dipped 0.7% from July, indicating a slower pace of recovery due to lower availability of vehicles.
Industrial production is supported by demand for electronic parts and devices as well as production machinery from reopening economies, but protracted semiconductor shortages and strained parts supply from Southeast Asia have forced automakers to reduce production, and thus shipments. Lockdowns in Vietnam and Malaysia have caused parts shortages, dampening Japanese output of refrigerators, washing machines and vacuum cleaners.
The government maintained its assessment that production is “picking up, although some weakness is seen.” Last month, it downgraded its view on factory output for the first time in 17 months.
On the upside, Japan lifted its Covid-19 state of emergency in all regions on Oct. 1 for the first time in nearly six months following a fall in the number of new cases. It now allows certified restaurants with anti-Covid measures to stay open until 9 p.m., and bars and restaurants can now serve alcohol.
The government noted in Friday’s report that there were indications that spending on eating out began to pick up in early October.
The government maintained its assessment that private consumption, which accounts for about 55% of gross domestic product, is “showing weakness.” Last month, it downgraded its view on consumption for the first time in four months.
In addition to sluggish expenditures on face-to-face services including eating out, new vehicle sales were down in September due to supply shortages.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Sept. 25 until Sept. 30 and released last week, showed sentiment rebounded on hopes that the recent acceleration in Covid-19 vaccination progress would allow people to shop, travel and gather more often and beyond provincial borders.
The Watchers’ sentiment index for Japan’s current economic climate posted the first month-on-month rise in two months in September, up 7.4 points at 42.1 on a seasonally adjusted basis, but it recovered just over a half of the previous month’s 13.7-point plunge to a seven-month low of 34.7.
September’s level is still well below 48.4 in July, which was a four-month high.
Looking ahead, the Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, marked the first increase in three months, surging 12.9 points to a nearly eight-year high of 56.6 in September after slipping 4.7 points to 43.7 in August. It was the highest level since 57.6 in November 2013.
The government repeated that business investment is “picking up,” a statement last upgraded in April. It added that public investment “remains at high levels but has shown a weaker tone recently,” downgrading its view for the first time in six months.
The Bank of Japan’s quarterly business survey for September released on Oct. 1 showed that higher energy and commodities prices this year further boosted confidence among many manufacturers, big and small, while the auto industry was hit by lingering global semiconductor shortages and worsening supply chain disruptions amid a spike in Covid-19 cases.
The survey also showed that large companies further revised up their plans for business investment in equipment for fiscal 2021 ending next March while smaller firms also revised up their capex plans.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* Private consumption is “showing weakness” (unchanged; last downgraded in September 2021; upgraded in October 2020).
* Business investment is “picking up” (unchanged; upgraded in April 2021; downgraded in November 2020).
* Housing construction is “firm” (unchanged; upgraded in September 2021; downgraded in September 2019).
* Exports are “increasing at a slower pace” vs. showing “a continued increase at a slow pace” (the first downgrade in seven months; upgraded in December 2020; downgraded in March 2021).
* Industrial production is “picking up, although some weakness is seen” (unchanged; upgraded in November 2020; downgraded in September 2021).
* 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).