Japan’s industrial production fell more than expected in July as slowing economic activity in some overseas markets weighed on demand, while retail sales beat estimates.
(Bloomberg) — Japan’s industrial production fell more than expected in July as slowing economic activity in some overseas markets weighed on demand, while retail sales beat estimates.
Factory output declined 2% from June, the industry ministry said Thursday. Economists had forecast a 1.4% drop. Manufacturing machinery and electronic components were among the biggest drags on overall output, the ministry said.
The weak reading signals external demand that powered Japan’s growth in the second quarter may be ebbing. In July, Japan’s exports fell for the first time in more than two years, as sharp declines in shipments of chip-making gear and parts outweighed a jump in demand for cars. Exports to China, Japan’s biggest trading partner, slid by 13.4%, the largest drop since January.
What Bloomberg Economics Says…
“Looking ahead, production will likely hover around July’s level in August. Increased chip supplies will probably continue to buoy car output but slowdowns in overseas markets will likely weigh on exports — a headwind for the manufacturing sector.”
— Taro Kimura, economist
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Output is expected to advance in the next two months, with the ministry estimating month-on-month gains of 2.6% and 2.4% in August and September, respectively.
Another report showed that retail sales gained 2.1% in July from June, beating a 0.8% gain forecast by analysts. Sales rose 6.8% from a year earlier, also exceeding estimates.
The economy needs strong external demand in order to power its post-pandemic recovery as domestic consumption remains patchy with inflation outpacing wage growth.
Japan is feeling the impact from China’s economic slowdown, and the risk of deflation there, combined with ongoing monetary policy tightening in the US and Europe as authorities in those regions battle rising prices.
(Adds details from report, economist’s comment)
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