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Japan's factory, retail sectors slump as pandemic hits auto sector

Bad numbers suggest economic recession over six months to March is likely to deepen in current quarter

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Nissan Motor plans to slash production capacity and model range by about a fifth to help cut costs by 300 billion yen (S$3.95 billion), following a slide in sales.

Tokyo

JAPAN'S factory output slid faster than expected and retail sales tumbled the most in more than two decades in April, as the coronavirus pandemic wrecked both foreign and domestic demand for the country's cars and other manufactured goods.

The bad numbers suggest the recession seen in the world's third-largest economy over the six months to March is likely to deepen in the current quarter, as government-imposed lockdowns disrupted supply chains and kept consumers shut in at home.

Official data released on Friday showed factory output slipped 9.1 per cent in April from the previous month, the biggest drop since comparable data became available in 2013 as automakers and iron and steel manufacturers suffered sharp declines.

"Output will probably pick up from June onwards but it will be necessary to remain on guard for a second wave (of coronavirus infections)," said Takeshi Minami, the chief economist at Norinchukin Research Institute. "The pace of a rebound will likely continue to be sluggish."

Automaker production fell by a third from the previous month. That led the government to downgrade its description of overall production to "decreasing rapidly" for the first time since November 2008, from just "decreasing" previously.

"Conditions among manufacturers, particularly in the auto sector are severe, but production has already restarted in China and I think that they will be resumed in the United States and Europe as well," said Economy Minister Yasutoshi Nishimura after the release of the data.

Nissan Motor plans to slash production capacity and model range by about a fifth to help cut costs by 300 billion yen (S$3.95 billion), following a slide in sales, the automaker said on Thursday.

Separate data showed retail sales tumbled at their fastest pace since March 1998, as the nationwide state of emergency led service-sector businesses such as restaurants to close.

Retail sales plunged 13.7 per cent in April from a year earlier, heavily weighed by slumping demand for general merchandise, clothing and vehicles.

The gloomy data comes after Japan's export-reliant economy fell into recession for the first time in four and a half years in the first quarter.

The government this week lifted the state of emergency and approved a second US$1.1 trillion stimulus package, bringing the total pledged to save the economy from the pandemic to US$2.2 trillion.

Japan was already trying to shake off weak demand before the outbreak, after the government raised the nationwide sales tax to repair its public debt burden.

The largest component of the government's new stimulus package was a loans programme for smaller firms in immediate need of cash to keep the lights on.

Other government data on Friday showed worsening conditions in the jobs market, suggesting such support for small- and mid-sized firms remained much needed to reduce the risk of employment conditions worsening.

The April jobless rate rose to 2.6 per cent, its highest since December 2017, although still well off the rates seen in other developed nations, where unemployment is approaching depression-era levels.

The number of non-regular workers posted the biggest year-on-year drop on record. Job availability slipped to 1.32, its lowest since March 2016.

Analysts said that jobs pain is mostly concentrated in the service sector as opposed to automakers, which were hit badly during the 2009 global financial crisis.

"If demand around cars doesn't recover, there's a possibility employment conditions in the manufacturing sector will worsen more going forward," Mr Minami said.

The factory output data showed manufacturers surveyed by the government expect output to fall another 4.1 per cent in May, followed by a 3.9 per cent rise in June. REUTERS

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