By Daniel Leussink

TOKYO, Reuters – In February Japanese factories saw their first increase in production in three months. Global demand resilience led to a recovery in vehicle production. This is a positive sign that policymakers hope to maintain the fragile country’s economic recovery.

However, the increase was less than what market analysts expected, which underscores the impact of supply chains bottlenecks as well as other risks like surging raw material costs.

Official data on Thursday showed that factory output increased 0.1% by February compared to the prior month. This was due to an increase in production of vehicles and other transport equipment, which offset a decrease in chemical use.

After falling 0.8% and 1.0% respectively in January, output saw a rebound. According to Reuters, economists forecasted a decrease of 0.5% in the increase.

Following Russia’s incursion into Ukraine last month, commodity and energy prices have skyrocketed. This has led to a decline in prospects for the country’s third-largest. The prices for raw materials are on the rise, which has left exporters facing higher input costs and increased supply chain disruptions.

According to Takumi Takunoda (senior economist, Shinkin Central Bank Research), “the situation in Ukraine will likely worsen the parts shortage further.”

It feels as if there is a chance that the recovery of output might be further delayed.

Japanese suppliers and automakers are also experiencing headwinds due to disruptions caused by coronavirus in China, which is the largest market on earth.

Thursday’s data indicated that output of automobiles and other motor vehicles rose 10.9% over February. This is a rebound after January’s contraction.

According to the Ministry of Economy, Trade and Industry, (METI), manufacturers surveyed expected their output to rise 3.6% and 9.6%, respectively, in March and April.

However, these forecasts did not account for any disruptions in output caused by the powerful magnitude 7.4 earthquake which struck Japan’s northeast coast on March 16. This led to plants being shut down at Toyota Motor Corp (NYSE:) Corp, and other companies

According to Tom Learmouth (Japan economist, Capital Economics), Japanese companies’ production plans are becoming increasingly optimistic for the coming months, which highlights possible risks heading into next quarter.

“Fresh headwinds from potential supply chain disruptions in Russia or China could keep Japan’s industrial production at bay, preventing any recovery until later this year.”