Japan’s manufacturers ended 2021 on a low note.
Japan’s factory output shrank by 1% in December, for the first time in three months, a larger fall than expected.
It was pulled down by a decline in output of general-purpose and production machinery, such as chip-making equipment and engines used in manufacturing.
Takeshi Minami, chief economist at Norinchukin Research Institute, suggests the global semiconductor shortages hit demand:
Output especially fell among capital goods makers, probably due to the strong impact from the chip shortages.
“It suggests its impact is widening even though the focus has been on the car industry.”
A private index measuring activity at factories in China fell to 49.1 in January from December’s 50.9, the weakest since February 2020 in the first wave of the pandemic.
That shows that the sector shrank this month, a gloomier view than the official PMI (see earlier post).
The Caixin/Markit manufacturing Purchasing Managers Index found that companies saw drop in output and new orders during January, at a modest pace.
New export business fell at the quickest pace since May 2020, and supply chain delays worsened. Firms also reported that inflationary pressures increased, with average input costs rising, and their own prices increasing.
Dr. Wang Zhe, Senior Economist at Caixin Insight Group, says the ongoing pandemic hit China’s factory base:
“The Caixin China General Manufacturing PMI fell to 49.1 in January, down from 50.9 the previous month. The index slumped into negative territory for the fourth time since February 2020, with January’s reading being the lowest in 23 months. Over the past month, there were Covid-19 flare-ups in several regions in China, underscoring the downward pressure on the economy.
Both supply and demand in the manufacturing sector weakened. Several regions tightened epidemic control measures following the resurgence, which impacted production and sales of manufactured goods. Both the subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace.
The spread of the omicron variant of Covid-19 overseas dampened China’s external demand, with the gauge for new export orders in January being the lowest in 20 months.
China’s factory growth slows
China’s factories have slowed this month, as the latest wave of Covid-19 infections hits its economy.
The official manufacturing Purchasing Manager’s Index (PMI) dropped to 50.1 this month, showing a slowdown from December’s 50.3, data released this weekend shows.
That’s only just above the 50-point mark showing stagnation.
It suggests the Covid-19 outbreaks and lockdowns in several Chinese provinces in recent months have disrupted factories and hit demand, ahead of the Lunar New Year.
A subindex for production in January fell to 50.9, down from 51.4 in December, while a subindex for new orders came in at 49.3, down from 49.7 in December, showing orders fell at a faster rate.
New export orders rose to 48.4 compared with 48.1 a month earlier, suggesting overseas demand remained subdued.
China’s services sector also showed slower growth, pulling the wider composite PMI down to 51.0, from 52.2
Ryanair is also hoping it may be able to lift fares this summer, pointing out that its rivals have cut capacity in the pandemic.
Ryanair Chief Financial Officer Neil Sorahan told Reuters in an interview that the fact so many rivals were cutting capacity compared to pre-COVID levels meant “there absolutely could be upward pressure on fares.”
He added that if Ryanair did need to cut fares to stimulate demand, its relatively large fuel hedging position means it is in a much better position than rivals to do so.
Ryanair has kept expanding, ready to win market share as travel returns. Since April 2021 it has announced 15 new bases and 720 new routes.
Introduction: Ryanair cautious on recovery after loss
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Budget airline Ryanair has struck a cautious note over the speed of the recovery in the travel sector this morning, after posting a net loss of €96m for the last three months.
With Omicron hitting operations in recent weeks, Ryanair CEO Michael O’Leary has warned that the outlook in the current quarter (its Q4) is “hugely uncertain”, despite a recent pick-up in demand.
Demand has improved recently after travel restrictions were lifted, O’Leary says. But bookings are coming in later than usual, so the airline is planning price cuts this quarter to stimulate demand.
Ryanair cut its capacity for January by a third in response to the latest variant which caused a “collapse in bookings” over the Christmas/New Year period. In December, traffic fell to 9.5m passengers, below its target of 11m.
O’Leary warns that the outlook for this quarter (January-March) is very uncertain, saying:
The outlook for pricing and yields for the remainder of FY22 is hugely uncertain.
Ryanair is sticking to its target of carrying ‘just under’ 100m passengers this financial year. But due to Covid uncertainty its earnings guidance is wider than usual – with a net loss of between €250m and €450m expected.
O’Leary adds there could be further Covid disruption ahead:
This outturn is hugely sensitive to any further positive or negative Covid news flow and so we would caution all shareholders to expect further Covid disruptions before we here in Europe and the rest of the world can finally declare that the Covid crisis is behind us.”
Europe’s stock markets are expected to open higher, after a turbulent January that’s seen the pan-European Stoxx 600 drop over 4%.
The latest eurozone GDP report will show how Europe’s economy fared at the end of last year, in the latest wave of Covid-infections. On Friday, we saw the France’s GDP rose by 0.7% in Q4, while Germany shrank by 0.7%.
- 8am GMT: Spanish inflation rate for January
- 9am GMT Italian GDP report for Q4 2021
- 10am GMT: Eurozone GDP report for Q4 2021
- Noon GMT: Mexico GDP report for Q4 2021
- 1pm GMT: German inflation report for January
- 2.45pm GMT: Chicago PMI for January
- 3.30pm GMT: Dallas Fed Manufacturing Index for January