May industrial output dip rekindles slump fears

Industrial production posted an unexpected fall of 0.4 percent in May from the previous month, the government said Thursday, rekindling concerns about a slowdown in the economy.

The reading compared with the average market forecast of a 0.7 percent increase, leading the Economy, Trade and Industry Ministry to revise downward its assessment of output for the first time in three months.

The index of output at mines and factories stood at 107.0 against the base of 100 for 2000, marking the third straight month of decline, the industry ministry said in a preliminary report.

METI said production is in a leveling-off trend, a downgrade from its April assessment that output was on a gradual upward trend.

Looking ahead, however, the ministry said manufacturers forecast 1.9 percent growth in industrial production in June and a 1.7 percent increase in July.

Economists said the downbeat data show that slowdowns in exports and the slower-than-expected inventory adjustments in the information and technology sector were making overall production unexpectedly sluggish.

"We cannot rule out the possibility that low-key production activity will continue in the July-September period," said Takahide Kiuchi, senior economist at Nomura Securities Co., indicating the manufacturers' growth forecasts in the METI report for June and July seem rather optimistic.

"Further progress in inventory adjustments in the IT and digital sectors and a pickup in imports will be keys to posting sustained growth in production, which we expect will not start until the October-December period," Kiuchi said.

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