TOKYO (Reuters) – Japan’s industrial output contracted in November and partially reversed the previous month’s gain, while retail sales slowed sharply as increasing global risks drag on demand and threaten the country’s export-reliant economy.

The 1.1 percent month-on-month fall, pressured by a pullback in production of general purpose machinery, compared with a median market forecast of a 1.9 percent decline, following a 2.9 percent increase in October, the data showed.

While the latest figure was better than expected, the outlook pointed to a bumpier road for Japanese manufacturers.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect output to rise 2.2 percent in December but decline 0.8 percent in January, the data showed.

Friday’s data comes at a time of heightening volatility in global markets on concerns over slowing growth in U.S. and Chinese economies, uncertainty about U.S. fiscal and monetary policies, and trade protectionism.

“Factory output is in the trend toward leveling off,” said Takeshi Minami at Norinchukin Research Institute.

“Japan’s export-reliant economy will face a severe situation next year due to the U.S.-China trade frictions and their ripple effects just as global trade growth is decelerating.”

Economists expect factory output and economic growth to rebound in the current quarter after a run of natural disasters disrupted production and triggered a third-quarter economic contraction. However, authorities remain wary about the potential impact of the China-U.S. trade war, which has not yet shown up in Japan’s output data.

Adding to concerns about overseas demand, Japan’s private consumption, which accounts for about 60 percent of the economy, shows no signs of strength either.

Japanese retail sales rose 1.4 percent in the year to November, slowing sharply from the 3.6 percent increase seen in October and undershooting a 2.2 percent gain expected by economists, separate data showed.

New-model cars, high fuel prices and demand for cosmetics among inbound tourists supported sales. But retailers faced pressure from slowing demand for clothing due to warm weather and for smartphones and digital cameras, highlighting headwinds for domestic consumption.

FURTHER EASING?

Separate data showed Japan’s jobless rate rose to 2.5 percent in November from 2.4 percent in October, and the jobs availability grew to 1.63 jobs per applicant from 1.62 in the previous month, near a 44-year high.

Japan’s aging and shrinking population has led to a tight job market, causing labor shortages and pushing up wages gradually as many companies scramble to attract workers.

Despite more than five years of the Bank of Japan’s (BOJ) massive monetary stimulus to conquer price declines, however, inflation is struggling to accelerate, underscoring the challenge the central bank faces.

Analysts say the BOJ is in no position to normalize monetary policy anytime soon despite concerns about side-effects from a prolonged easy money policy, such as a hit to banks’ profits because of dwindling margins due to ultra-low interest rates.

Some flag the possibility of further easing down the road given tame inflation, and risks to Japan’s economy – the world’s third largest – and business investment from a slowdown in global economic growth. Consumer inflation remains well below the BOJ’s 2 percent goal.

Tokyo-area’s core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.9 percent in the year to December, slowing from 1.0 percent in November and matching the 0.9 percent forecast by economists.

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