then flattening
TOKYO (AFX-ASIA) - Underlying numbers in the industrial output data for April suggest production is headed for a V-shaped rebound but then may flatten out, said Hiromichi Shirokawa, chief economist at UBS Warburg. The trade and economy ministry said it upgraded its April assessment of industrial output after the figure came in at a rise of 0.2 pct month-on-month, saying production "appears to be rebounding".
The ministry previously said output was "stagnating at low levels". The upgrade came despite the disappointing headline number, which compared with a market consensus for a rise of 0.9 pct.
"We suspect that an extremely bullish forecast by the ministry (of) plus 5.1 pct month-on-month for manufacturing output is unlikely to be achieved, however, a 2.0-3.0 pct increase in industrial production is likely in May," Hiromichi said. "This would mean a 5.5 pct increase of industrial production during the first six months of the recovery, compared with 2.5 pct rise in the last cycle during the first half of calendar year 1999," he said. "A quicker pace of de-stocking in the past year should be responsible for such a V-shape recovery of production," he added. "Importantly, however, production would likely be flattish for a few months after June without any strong follow-through from final demand, in our view." Hiromichi noted growth in shipments and a further run-down in inventories. "Shipments maintained a high pace of growth, while inventories were cut further. This pushed down the inventory-to-shipments ratio to a 16-month low. The ratio declined 6.9 pct during the month," he said. "Although we anticipate quarter-on-quarter growth of exports slowing down and domestic demand remaining sluggish, the pace of production recovery will likely accelerate in the near-term due to re-stocking."