TOKYO (AFX-ASIA) - The Ministry of Finance said three months to June overall capital expenditure was surprisingly solid, led by the manufacturing sector as well as a reduction in the decline in non-manufacturing spending.
However, a ministry official warned that declining sales in the manufacturing sector are likely to impact on investment spending going forward, with conditions here expected to be severe.
The ministry had expected capex to show further signs of a slowdown from April, but overall capex rose 2.3 pct in the second quarter, down only slightly from the 2.5 pct rise the previous quarter.
"It seems to me that strong sentiment in capex continued into the second quarter," the ministry official said.
"Many people think the capex rise in the second quarter was unexpected but reported deterioration is taking place now (in the current quarter)," he said.
The official declined to comment precisely on the outlook for capex but said it is expected to be severe, given the trend in manufacturing sales.
"Manufacturers' sales figures this quarter showed negative growth. We expect this will reflect on the overall outlook for capex," he said.
Sales in the manufacturing sector fell 1.6 pct in the second quarter, compared with a rise of 0.7 pct in the first.
Non-manufacturing sales rose 2.5 pct, compared with a rise of 3.7 pct. Capex in the electric machinery sector rose 17.8 pct in the second quarter, compared with a rise of 30.4 pct in the previous quarter, while service sector capex rose 2.8 pct, compared with a fall of 14.3 pct.
On the other hand, profits in non-manufacturing started to show some recovery, led by the positive impact of restructuring efforts here. However, this contrasts with profit declines in the manufacturing sector. "Pretax profit in manufacturing has become negative due to the electric machinery sector but the non-manufacturing sector has started to show some growth led by restructuring efforts, especially in services," the official said. Service-sector profit rose 36.9 pct in the second quarter compared with a 30.2 pct fall in the first, while electric machinery-sector profit fell 88.6 pct compared with a fall of 1.6 pct.