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Brighter Outlook For Production

By BNP Paribas (Philippe d'Arvisenet)Market OverviewJan 31, 2013 06:59AM ET
Brighter Outlook For Production
By BNP Paribas (Philippe d'Arvisenet)   |  Jan 31, 2013 06:59AM ET
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The rebound in industrial production in December by 2.5% m/m is due to the large seasonal adjustment factor. The original data point to deterioration. Nevertheless, the industrial outlook has certainly improved due to the depreciation of the yen and the recently announced stimulus plan.

As expected, industrial production (seasonally adjusted) rebounded in December by 2.5% from the previous month. This result can only be explained by the large positive seasonal adjustment factor for this month, related to the sharp production fall in December 2008.

Looking at the original data, production is almost 8% lower from a year earlier. In October-November, the year-on-year change was around -5%. This actually points to a deterioration of industrial activity. It is largely driven by a sharp decline in year-on-year production growth in the large transport equipment industry, -16.2% in December after -9.1% in November. The slump in car production in Q4 is due to the termination of the purchase incentives for eco-friendly cars in September.

The worsening of the industrial climate fits better with other data releases. For example, goods exports actually contracted in December by 0.2% largely due to retaliations following the territorial conflict with China (See EcoFlash 24 January, Trade is harmed by conflict with China).

Nevertheless, the manufacturing outlook has certainly improved in recent months. The diffusion index for the outlook in the Economy Watchers Survey jumped to 51 in December, a highest since April 2007. The panel reported that inquiries and orders have increased thanks to the depreciation of the yen and the increase in stock prices.

The exporting industries are well placed to profit from the gradual strengthening of the global manufacturing cycle. Moreover, a resolution of the territorial conflict with China would further boost demand. On the domestic side, the recently announced supplementary budget is likely to boost production in the coming months.


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