March 2, 2020 / 12:44 AM / a month ago

Japan fourth-quarter capex down, virus outbreak dims outlook

TOKYO (Reuters) - Japanese companies slashed spending on plant and equipment in the December quarter, bolstering recession fears as the coronavirus outbreak and global slowdown pile pressure on the export-reliant economy.

FILE PHOTO: Humanoid robots work side by side with employees in the assembly line at a factory of Glory Ltd., a manufacturer of automatic change dispensers, in Kazo, north of Tokyo, Japan, July 1, 2015. REUTERS/Issei Kato

Capital spending has been a bright spot in Japan’s fragile economy, the world’s third largest, driven by investment in urban development and labor-saving technology, automation and the high-tech sector to cope with labor shortages in the aging society.

However, analysts said the momentum will wane as the coronavirus batters activity in China - Japan’s largest trading partner and the driver of global trade - cooling business confidence and hurting appetite for investment.

Capital spending fell 3.5% in the last quarter from the same period a year earlier, Ministry of Finance (MOF) data showed on Monday, posting the first decline in 13 quarters and reversing from the prior quarter’s 7.1% gain.

On a seasonally adjusted basis, business expenditure declined 4.2% quarter-on-quarter in the October-December period, the data showed.

The data will be used to calculate revised gross domestic product (GDP) figures due March 9, and follows a preliminary estimate that Japan’s economy shrank an annualized 6.3% in the last quarter.

That marked the deepest contraction in almost six years as a sales tax hike hit consumer and business spending, raising the risk of a recession as the widening fallout from the virus epidemic weighs on output and tourism.

The gloomy GDP data was followed by a separate indicator that showed a 2.1% drop in core machinery orders - a volatile data series serving as a leading indicator of capital spending - in the last quarter. Manufacturers anticipate a further 5.2% drop in the January-March period.

Manufacturers’ business spending fell 9.0% from a year earlier, according to Monday’s survey, conducted among firms with at least 10 million yen ($92,533) in capital. It followed a 6.4% gain in the previous quarter.

Service-sector spending fell 0.1% year-on-year, following the third quarter’s 7.6% increase.

Corporate recurring profit decreased 4.6% in the October-December quarter from a year earlier, falling for the third consecutive quarter.

Sales dropped 6.4% year-on-year in October-December, down for the second straight quarter and slowing further from the previous period’s 2.6% decline.

Reporting by Tetsushi Kajimoto; Editing by Christopher Cushing

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