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Japan petrochemical exports shrinking; economy deep in recession

Japan’s export volumes of key petrochemicals have shrunk in the first seven months of 2020, with external demand likely to stay muted, as the world’s third-biggest economy wallows in deep recession amid the pandemic.

Its shipments of benzene, ethylene and propylene abroad have logged steep contractions in January-July 2020, according to ICIS Demand and Supply Database.

Japan, which is the world’s third-biggest economy, is export-oriented like most of Asia, with cars – a key downstream market for petrochemicals – as its major export product.

Initial August data showed continued sharp contractions in overall exports as external demand is unlikely to stage a strong recovery with no clear resolution to the coronavirus pandemic sweeping across the globe.

Japan’s overall exports in the first 20 days of August declined by 15.3% year on year to Japanese yen (Y) 3.03tr, while imports registered a steeper fall of 17.4% to Y3.23tr, data from the Ministry of Finance showed.

The outlook on capital spending just dimmed, with Japanese industries looking at a 6.8% reduction in the current fiscal year ending March 2021, with contractions of 23.2% in ordinary profits and 6.8% in revenues projected, based on quarterly survey results released by the Ministry of Finance on Friday.

Manufacturing capital expenditure (capex) is projected to fall by 4.5%, while non-manufacturing capex is expected to decline by 8.1%.

In July, capital spending improved as indicated by a rebound in machinery orders, which posted a month-on-month growth for the first time in the current fiscal year.

The Japanese economy posted a record contraction in the June quarter, largely as a result of restrictions on businesses and people movement to contain the deadly flu-like disease during the period.

The final reading was deeper 28.1% year-on-year decline from the initial estimate, dragged down by a bigger-than-expected slump in capital spending and weakness in consumption.

“After the historic contraction in Q2, we expect the economy will rebound in Q3 as consumer spending and activity regain ground,” said Stefan Angrick, senior economist at research firm Oxford Economics, in a note dated 8 September.

“However, high-frequency data show that growth is struggling to gain pace, suggesting a very gradual and protracted recovery after the initial bounce. The near-term outlook therefore remains challenging,” Angrick stated.

The Japanese economy “is still in an extremely severe situation economic activity has shown signs of a pick-up, although it remains at a low level”, Japan central bank deputy governor Wakatabe Masazumi had said on 2 September.

“As with the global economy, however, preventive measures taken by firms and households will continue to act as a force constraining economic activity while vigilance against COVID-19 [coronavirus disease 2019] continues,” he added.

Japan’s stimulus package was a hefty Y234tr ($2.2tr), representing 40% of the country’s GDP, to cushion the economy from the beating of the global health crisis.

Global financial stability watchdog – the International Monetary Fund (IMF) – expects the world’s third-biggest economy to contract in 2020 by 5.8%, a reversal of the 0.7% growth posted in the previous year.

A return to pre-pandemic GDP growth for the country is expected to be around the fiscal year 2022 based on the baseline scenario of the Bank of Japan’s July 2020 outlook report.

As of 10 September, Japan has a total of 73,221 confirmed coronavirus cases with 1,406 deaths, data from the World Health Organization (WHO) showed.

The pandemic that has been raging for months originated in China in late 2019, and has now infected more than 27.7m people and killed nearly 900,000, according to the data.

Meanwhile, Japan will soon have a new leader as incumbent Prime Minister Shinzo Abe will step down due to poor health as soon as his successor is named.

Government spokesperson Yoshihide Suga is widely expected to win as the next chief of Japan’s ruling Liberal Democratic Party, in an election scheduled on 14 September.
Source: ICIS, Focus article by Pearl Bantillo, https://www.icis.com/explore/resources/news/2020/09/11/10551391/japan-petrochemical-exports-shrinking-economy-deep-in-recession

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