By Kantaro Komiya and Yoshifumi Takemoto

TOKYO (Reuters) – Japan’s industrial output fell for the second straight month in August as COVID-19 outbreaks elsewhere in Asia disrupted supply chains for carmakers already facing headwinds from a prolonged chip shortage.

A separate report released on Thursday indicated that retail sales fell in August for the first-time in six months due to households cutting back spending following a coronavirus outbreak. This indicates a lackluster consumer sentiment.

Data suggests that Japan’s current pandemic has continued this quarter. This will pose a problem for Fumio, the new prime minister of the ruling party, which won Wednesday’s leadership election.

According to official data, August factory output dropped 3.2% compared with the prior month. The decline was caused by lower car and electronic machine production. It marked the second consecutive month in contraction, following July’s 1.5% fall.

This was more than the 0.5% drop predicted in a Reuters poll.

Major Japanese automakers including Toyota Motor (NYSE:) Corp, Nissan (OTC:) Motor Co and Honda Motor Co have faced production cuts since late August due to components shortage, which could have a lasting impact well into October, the industry lobby warned earlier this month.

According to government surveys, manufacturers expect that output will rise by 0.2% and 6.8% respectively in September and October.

For the first time since April 2020 government has downgraded industrial production’s assessment, stating that it was “stalling”.

Analysts predict that the third largest economy in the world will grow at 1.2% per year this quarter. This is a slower pace than any advanced economies due to stop-go coronavirus curbs on private consumption.

Retail sales declined 3.2% in August compared to a year ago, according to separate data from the government.

This was the first drop in retail sales for six months, and it was more than what the median market predicted would be a 0.0% decline.

Japan had earlier said that it would remove coronavirus restrictions in all countries by Thursday, following a dramatic fall in COVID-19-related cases. Also, around 60% of people have been fully vaccinated.

The retail sales decreased by 4.1% compared to the previous month.