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December 2017 Industrial Production

Production maintains favorability, but iPhone production cut may bring -1.9% decline in production for electronic parts and devices

January 31, 2018

Kazuma Maeda

Shunsuke Kobayashi

Summary

◆The December 2017 indices of industrial production recorded growth for the third consecutive month at +2.7% m/m, while shipments grew for the second consecutive month at +2.7% and inventory declined by -0.4%. The METI production forecast survey sees January 2018 performance down by -4.3% m/m, and February up by +5.7%.


◆Industrial production is maintaining favorable performance due to expanding exports accompanying recovery of the global economy. However, it is important to note that the reason December production exceeded market consensus (+1.5%) by such a large percentage was because of a temporary production increase for transport equipment.


◆The electronic parts and devices industry announced ambitious plans for the future with January 2018 production seen up by +4.8% m/m, and February also up by +13.5%. However, this forecast most likely has not taken into consideration the planned iPhone production cut. Considering global production volume of smart phones and the share of that market held by Japanese electronic parts and devices for the Jan-Mar period of 2017, the electronic parts and devices industry could experience a production decline of around -1.9%.


◆Production is expected to experience moderate growth in March 2018 and beyond. As for capital goods, exports are expected to expand centering on industrial robots due to the recovery in the global economy. However, caution is required regarding overseas demand due to possible downside risk. If US interest rates undergo a rapid rise in association with the Fed’s exit strategy, this could bring downward pressure on the US economy, while at the same time encouraging capital outflows from the emerging nations.

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