Business outlook among companies deteriorates sharply

Japanese companies had a much bleaker business outlook in the January-March quarter than in the previous quarter, mainly over concerns of higher oil prices and the sluggish U.S. economy, a government survey showed Monday.

The business survey index dropped sharply from plus 0.5 to minus 9.3, the lowest level since the Finance Ministry and the Cabinet Office started compiling the joint survey in the April-June quarter of 2004.

The index is calculated by subtracting the percentage of companies that say business conditions have deteriorated from the previous quarter from the ratio of those that say business conditions have improved.

According to the business outlook survey, the index for large manufacturing companies dropped to minus 12.9 from plus 5.2, while the figure for large nonmanufacturing companies fell to minus 7.2 from minus 2.2.

The index for middle-sized companies in all industries dropped to minus 14.1 from minus 2.6. The index for small companies plunged to minus 30.4 from minus 18.7.

Among industries, companies in the food production, restaurant, hotel and information technology-related machinery manufacturing industries showed significant declines in business assessments.

Food production companies and operators of restaurants or hotels have been hit hard by higher costs for raw materials and packing and transportation, while IT machinery makers were affected by declining demand for semiconductors.

As for earnings for the current fiscal year, which will end on March 31, companies in all industries estimated their sales would increase by an average 1.9 percent from last fiscal year, but their pretax profits would decline by 2.9 percent.

In the previous survey conducted in November last year, the companies estimated that their pretax profits would drop by 1.0 percent.

Companies made stricter estimates in the latest survey. In particular, manufacturers in the latest survey predicted their pretax profits would decline by 0.9 percent, compared with a 0.9-percent increase in the previous survey.

The companies also estimated in the latest survey that their investments in plants and equipment would rise by 0.6 percent this fiscal year, but would decrease by 9.4 percent in fiscal 2008.

However, the figure generally rises gradually when more companies work out their investment plans.(IHT/Asahi: March 25,2008)