Japan Sector report
Sectors @ a glance
Industry performance outlook
Construction/ Const. Materials
The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.
Remains Fair The sector has been impacted by lockdown measures (e.g. transport and supply chain issues) and the ongoing spread of the pandemic. After several years of increases, agriculture value added growth is forecast to decrease by about 3% in 2020, and the prospects for a comprehensive short-time recovery still look muted, with a modest 1% rebound expected in 2021.
Remains Poor While margins were already under pressure before the coronavirus outbreak, Japanese automotive producers and suppliers have suffered from globally deteriorating sales for passenger cars and commercial vehicles. This has led to a sharp decrease in production, liquidity strains and cash shortfalls among many businesses in H1 of 2020.
Major Japanese automotive manufacturers have resumed most of their production since July 2020. Demand for cars recovered in H2, and sales of new cars in October and November 2020 increased 32% and 6% respectively year-on-year. The recovery is expected to continue in 2021, although major market uncertainties remain. After contracting 22% in 2020, automotive value added is forecast to increase by about 14% in 2021.
The credit risk of Tier II suppliers has especially increased, as they often produce low-tech/substitutable products and have weaker financials. In H1 of 2020, bankruptcies in the overall automotive/transport segment levelled off, compared with H1 2019. However, they increased in some some sub-segments, such as manufacturers of transportation equipments (up 80%) and car retailers (up 12%), with further increases ongoing in H2 of 2020.
Remains Good Chemicals and pharmaceuticals businesses generally show robust business financials, good payment records and low insolvency rates compared to other industries. However, the deteriorating demand from key buyer sectors like automotive had a negative impact on chemicals performance, and sector value added is expected to have decreased 7% in 2020. Pharmaceuticals demand benefited from rising health expenses and grew by more than 4% in 2020.
Remains Poor In 2020 construction orders and output suffered from the severe economic recession (a 5.4% GDP contraction is expected). Construction value added is expected to have shrunk 3.2% in 2020 (construction materials down 5.7%). In 2021 construction value added is expected to rebound by about 3% (construction materials up 4%). Insolvencies have not yet increased due to the implementation of comprehensive fiscal measures, supporting the liquidity position of companies.
Remains Poor In 2020 household consumption is expected to have decreased by more than 6%. Private consumption of non-food consumer goods deteriorated since Q4 of 2019, due to a VAT increase in October 2019. The impact of the coronavirus pandemic accelerated this downturn, as many businesses temporarily closed due to lockdown measures.
A modest rebound started in October, attributable to improvement in consumer sentiment, as the pandemic settled and government campaigns to encourage consumer spendings were implemented. However, due to another increase in infection rates since mid-November and subsequent lockdown measures the short-term outlook remains muted. In 2021 retail value added is forecast to rebound by just about 1% after a 7% contraction in 2020. The number of payment defaults and business closures has increased in the non-food retail segment, despite comprehensive fiscal measures to support the liquidity position of businesses.
Remains Fair ICT production was severely impacted by supply chain disruptions and deteriorated demand from China in Q1 of 2020. At the same time, domestic ICT sales deteriorated due to the temporary closure of businesses during the lockdown in early 2020, while lower global demand hampered exports. However, in the course of 2020, ICT proved to be less affected by the pandemic than other sectors. While IT investments by manufacturers and the transport sector (whose financials are heavily impacted by the pandemic) decreased, there has been an increase in demand from retail and public sectors. ICT value added is forecast to increase 2.5% in 2021 after a 0.6% contraction in 2020. Even before the coronavirus outbreak, ICT wholesalers and retailers already operated in a highly competitive environment with generally low profit margins, which makes them susceptible to downside risks.
Remains Good The sector remains relatively robust. However, interim results (April –September 2020) of five major financial groups show a decrease in net profits by 32% year-on-year, due to increased credit control costs to prepare for a deterioration of debtors’ financial situations. Quarterly results for July-September show an improvement compared to the results from April-June, but there are still uncertainties in the market due to new infection outbreaks, which could cause an increase in loan defaults. Sector value added is expected rebound 3% in 2021 after a 0.7% decrease in 2020.
Remains Good Despite ongoing sales, the sector has been impacted by the consequences of lockdown measures (e.g. transport and supply chain issues). Value added is expected to increase by about 1.5% in 2020 after levelling off in 2020.
Remains Fair Companies in this industry are in general financially resilient. However, the business outlook has been impacted by decreasing orders on hand and lower production due to the economic downturn. Domestic and international demand from key buyer sectors like automotive has deteriorated. Engineering value added is expected grow by 4.5% in 2021 after a 10% contraction in 2020. Thus far there was no significant increase in insolvencies, as businesses have benefitted from comprehensive fiscal measures to support their liquidity position.
Remains Poor Major non-ferrous metal producers and traders in Japan experienced a decrease in both demand and commodity supply in H1 of 2020, mainly due to sluggish production by car manufacturers (which are the main buyers for the industry), and the temporary cession/hold-up of mining activities in South America and Africa. In H2 of 2020, the situation gradually improved, due to a resumption of economic activity, the recent positive trend in metal prices led by the recovery of the Chinese economy, and increasing demand for electric vehicles. Metals value added is expected to rebound by about 8% after a 14% contraction in 2020.
Remains Fair The paper industry is of minor relevance in Japan compared to other sectors. The impact of the coronavirus pandemic could be both positive (more people having time to read), but also negative (decreasing advertisement revenues due to the economic slump forcing some magazines or newspapers could leave the market).
Remains Poor Many subsectors have suffered heavily, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. In the January-November 2020 period, the number of bankruptcies in the restaurant, hotel and other services segments increased by 5%, 82% and 21% respectively. While the insolvency increase abated somewhat over the past three months, the recent rebound of infection rates and subsequent lockdown measures could hamper the recovery trend of the industry. Hotel and catering value added is expected to grow only 1% in 2021 after a 18% contraction in 2020.
Remains Poor This industry experienced a sharp drop in demand due to a decrease in orders from car manufacturers and construction companies, which are the main customers for Japanese steelmakers. In the financial year 2020 (April 2020–March 2021), steel production is expected to decrease 20% year-on-year. However, demand started to recover in H2, as major domestic car manufacturers resumed production. The rebound is also helped by the fact that China has resumed its economic activity, and that the global supply of steel is getting tight. Steel value added is forecast to grow 8% after an 18% contraction in 2020.
Remains Poor Wholesalers and retailers are negatively affected by changes in customer behaviour and increased competition from new online retailers. Their performance has further deteriorated due to low sales during the lockdown in early 2020, and as a result of subdued consumer sentiment. Textiles value added is expected to have shrunk 9% in 2020, with rising payment defaults and business failures. In 2021 only a rebound of about 3.5% is expected.