Japan Nov. factory output slumps

Thursday, 29 December 2011 00:19 - - {{hitsCtrl.values.hits}}

TOKYO (Reuters): Japan’s factories cut output more than expected in November because of supply disruptions caused by flooding in Thailand and may at best recoup lost production in the coming months as global slowdown and Europe’s debt crisis sap overseas demand.

Industrial output fell 2.6 percent last month, much more than a median market forecast of a 0.8 percent decline, wiping out October’s 2.2 percent gain, government data showed on Wednesday.

Many Japanese electronics and carmakers have production facilities in Thailand or rely on parts made in the country and output of information and communication equipment slumped by nearly a quarter while production of cars and other transportation equipment fell 9.5 percent.

“The flooding is subsiding and both industries expect sharp production expansions in the next two months,” said Takuji Okubo, chief economist at Societe Generale in Tokyo.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry, expect production to rebound 4.8 percent in December, which the ministry estimates would keep October-December output virtually unchanged from the third quarter.

Japanese companies predicted further 3.4 percent rise in January, but economists said companies tended to overshoot their forecasts and warned that the economy will struggle to regain momentum after weak final quarter of this year.

“It is likely that external demand will continue to shrink in the first quarter of 2012, judging from our global economic outlook,” Okubo said. “Industrial production seems set to expand for the next two months, but whether it can continue to grow beyond the short term is uncertain.”

The Bank of Japan last week struck a pessimistic note, acknowledging that the world’s third-largest economy will stagnate at least until spring next year, but stood pat on policy to save its limited ammunition.

Posing a further challenge to the central bank, core consumer prices fell 0.2 percent in a year to November, separate data showed, confirming deflation that has lasted for much of the past 15 years is persisting.

Worries about the health of the Japanese and world economies weighed on domestic consumption, with household spending falling 3.2 percent in November from a year earlier and retail sales down 2.3 percent. Both results were much weaker than forecasts.

Japan’s economy probably slowed sharply this quarter, after robust 1.4 percent growth in the third quarter driven by companies’ efforts to restore output and damaged supply chains.

But many analysts count on reconstruction to help the economy make it through a soft patch given the government has allocated 18 trillion yen ($231 billion)in related spending this fiscal year and the next.