TOKYO (Reuters) – Japanese firms cut spending on plant and equipment by the most in a decade in the second quarter, the government said on Tuesday, as the coronavirus pandemic delivered a heavy blow to business activity.
The negative reading comes after the government called a state of emergency early in the second quarter in a bid to tackle the health crisis, which also led to sharp falls in corporate profits and sales in the quarter.
Capital spending shed 11.3% in April-June year-on-year, the biggest drop since the first quarter of 2010, as the COVID-19 crisis hit investments by the manufacturing as well as service sector, Ministry of Finance (MOF) data showed on Tuesday.
The sharp decline followed a 0.1% rise in the first three months of the year, which already signalled strains in corporate sentiment resulting from the coronavirus pandemic.
On a seasonally-adjusted basis, capital expenditure lost 6.3% quarter-on-quarter in April-June.
The negative data will be used to calculate revised second-quarter gross domestic figures (GDP) due on Sept. 8 of the initial estimate for a 27.8% decline.
While analysts expect the economy to fare better in the current quarter after the state of emergency was ended in late May, many forecast any rebound to be modest and a recovery to take years.
Japan is also in the midst of a leadership change after Prime Minister Shinzo Abe said on Friday he will step down due to worsening of a chronic illness, raising uncertainty about the outlook for monetary and fiscal policies.
The government expects the economy will recover to pre-coronavirus levels around the first quarter of 2022, Economy Minister Yasutoshi Nishimura said last week.
The latest MOF survey showed manufacturers’ business spending fell 9.7% from a year earlier, following a 5.3% drop in the previous quarter.
Corporate recurring profit tumbled 46.6% in the April-June quarter from a year earlier, the biggest drop since the second quarter of 2009, due to declining demand for cars and other transportation goods.
Sales dropped 17.7% year-on-year in April-June, down for the fourth straight quarter to see the biggest drop since January-March 2009.