In World Economy News 15/01/2016
Japan’s core machinery orders tumbled the most in 18 months in November after solid gains in prior months, adding to uncertainty over the outlook as domestic demand stays subdued and China’s slowdown dims global growth prospects.
The 14.4 percent fall in core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, compared with economists’ median estimate for a 7.9 percent month-on-month decline, Cabinet Office data showed.
The data comes as the economy got the new year off to a rough start as China’s slowing growth and tumbling oil prices rattled global markets, raising fears of deepening slowdown in the world economy and potentially eroding confidence at Japanese firms.
Uncertainty over the outlook could lead Japanese firms to further delay implementing their spending plans, diminishing policymakers’ hopes of generating a virtuous growth cycle of higher incomes and investment by the private sector.
“Machinery orders are slow to recover. Weak business sentiment at home and falling commodity prices cast concerns about the outlook,” said Junichi Makino, chief economist at SMBC Nikko Securities.
The Cabinet Office stuck to its assessment on machinery orders, saying a pickup trend was observed although orders declined severely in November.
Companies surveyed by the Cabinet Office have forecast core orders would rebound to a 2.9 percent rise in the final three months of 2015, after a 10 percent drop in the prior quarter.
Compared with a year earlier, core orders, which exclude orders for ships and heavy electrical equipment, increased 1.2 percent in November, versus a 6.3 percent annual gain seen by analysts.
The Bank of Japan’s key tankan survey showed in December big firms plan to boost capital spending by 10.8 percent this fiscal year to March, but companies have so far been slow to implement their spending plans because of uncertainty over the outlook.
Analysts say capital spending should follow an uptrend given a generally favourable investment situation due to a hefty profit boost from the weak yen, ageing of existing production capacity, and low borrowing costs.
Prime Minister Shinzo Abe decided last month to slash the effective corporate tax rate to below 30 percent from next fiscal year starting April 1, piling pressure on companies to boost capital expenditure and raise wages in return.
Japan’s economy narrowly dodged a recession in July-September. It is expected to continue moderate growth in the last quarter, but some economists flagged the risk of a contraction due to weak consumption and slack capital spending.
Source: Reuters (Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)
