By Daniel Leussink
TOKYO (Reuters) – Japanese business confidence plunged to fresh decade lows in April as firms reported widespread damage from the coronavirus pandemic which is threatening to throw the world economy into recession, the Reuters Tankan survey showed on Thursday.
The global spread of the highly contagious virus has caused entire regions to be placed on lockdown, upended supply chains and halted services and production around the world.
The poll showed both manufacturers and service-sector firms in Japan expected to see a further sharp deterioration in business sentiment in the three months ahead.
The weak business confidence could deal a hard blow to capital spending, one of the few bright spots in the world’s third-largest economy, likely raising calls on the government to roll out more supportive measures.
Last week, Prime Minister Shinzo Abe declared a state of emergency to fight coronavirus infections in major population centres and unveiled a nearly $1 trillion stimulus package to soften the economic blow.
Sources told Reuters the Bank of Japan will discuss further steps to ease corporate funding strains at this month’s rate review after it eased monetary policy last month to help firms grappling with the coronavirus crisis.
All manufacturing industry categories were pessimistic about business conditions, according to the Reuters poll of 499 large- and mid-sized non-financial companies, of which 239 firms responded on condition of anonymity.
Among the service sector, no industry categories were optimistic about the business mood except the real estate/construction and information/communications sectors.
A manager at a real estate firm said business conditions didn’t see any impact from the coronavirus yet, while adding that some cancellations had started to come in.
“Due to the impact from the virus, orders are decreasing across almost all industries, focused on those for the automobile industry,” a manager at an electrical parts maker wrote in the survey.
A manager at a transportation equipment maker said: “Because of the COVID-19 impact, sales are dropping to an extent never seen before.”
Ninety-three percent of companies said they expected the impact of the virus on supply and demand their business has experienced to last at least for a number of months or could not say when the impact would end.
“As there is no precedent, we can’t predict what things will be like,” said a manager at a retailer.
The sentiment index at manufacturers slumped to minus 30 in April from minus 20 in the previous month, hitting the lowest since October 2009, when the world economy was still on shaky ground from the global financial crisis.
The service-sector gauge dropped to minus 23 from minus 10, the Reuters Tankan poll showed, the worst reading since Feb 2010. A negative figure means pessimists outnumber optimists.
Both manufacturers and service-sector firms forecast the mood to be even more downbeat in three months’ time. Manufacturers’ sentiment was seen dropping to minus 47 in July, while the service-sector mood was seen slumping to minus 44, the survey showed.
The economy is expected to have already slipped into recession – two straight quarters of contraction – in the March quarter due to the worsening COVID-19 pandemic, following a slump in the final quarter of 2019.
(Reporting by Daniel Leussink; Editing by Jacqueline Wong)