Japan’s May factory output suffers biggest slump in 2 years

Japan’s factory output posted the biggest monthly drop in two years in May as China’s COVID-19 lockdowns and semiconductor and other parts shortages hit manufacturers, adding to worrying signs for an economy struggling to mount a strong recovery.

The decline also highlights the challenge the world’s third-largest economy faces in overcoming supply disruptions and persistently high prices of raw materials and energy.

Factory output slumped a seasonally adjusted 7.2 percent in May from the previous month, official data showed on Thursday, as production of items such as cars as well as electrical and general-purpose machinery dropped sharply.

The decline, which marked the sharpest monthly reduction since a 10.5 percent month-on-month drop in May 2020, was much bigger than a 0.3 percent fall expected by economists in a Reuters poll.

“The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The conventional wisdom is that supply shortages are the main culprit,” he added. “However, the fact that inventories were broadly stable despite plunging output suggests that weak demand is playing a role.”

The data comes a day after Toyota Motor Corp, the world’s largest automaker by sales, said it missed its already downgraded global production target for May.