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Last updated: March 31, 2011 2:25 pm
Japanese manufacturing activity sank to a two-year low in March, underlining the impact of the earthquake and tsunami on economic activity in the country.
The damage caused by the March 11 disaster, which has claimed the lives of more than 11,000 people, severely disrupted the production of car parts, electronics and other products, forcing global companies such as Toyota to halt manufacturing.
The disruption has been exacerbated by the nuclear crisis at the Fukushima Daiichi power plant – sparked by the tsunami – that has contributed to an electricity shortage that has led to rolling power cuts in the Tokyo region, which accounts for 38 per cent of the Japanese economy.
The seasonally adjusted Markit/JMMA Japan manufacturing purchasing managers' index fell to 46.4 in March from 52.9 the previous month, the steepest decline since the data began in 2001, according to a Markit release on Thursday.
New orders fell at the steepest rate in two years, while cost inflation rose at the fastest pace in two and a half years, according to the release.
The PMI index gives a snapshot of overall activity in manufacturing, including output, order flows and pricing, with a figure above 50 indicating growth in activity and a figure below that level indicating a contraction.
Markit also faced difficulty in collecting the data, highlighting just how strongly this disaster has affected Japanese manufacturing. Markit received just 67 per cent of the average number of replies. It had just 5 per cent of average replies from Tohoku, 85 per cent from Chubu – where many car factories are based – and 60 per cent from the Kanto region.
The disaster has underscored just how important Japan is in the global supply chain of a whole variety of goods, with production of rubber products and plastics also heavily disrupted. Global carmakers have been particularly hard-hit, because of tight inventory management and a high proportion of vehicle electronics components made in Japan.
“This earthquake and tsunami will fundamentally change the thinking of companies because it reminds them of the importance of really diversifying [component sourcing geographically],” said Hans-Paul Bürkner, chief executive of the Boston Consulting Group.
“Distributing your suppliers around the world is key. It could be the same company but with different manufacturing sites. There’s much more sensitivity to risk management and operational risk and [this] will change the landscape of supplies around the world.”
He added that manufacturing could return to normal by the end of June as companies and households made efforts to reduce their power usage.
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