Domestic Economy Significantly Worsens in March 2026 Due to Tightening Middle East Situation; All Scales, Industries, and Regions Decline for the First Time in 2 Years and 6 Months

株式会社帝国データバンク (Teikoku Databank, Ltd.) surveyed and compiled the domestic economic trends for March 2026 among 10,312 companies (out of 23,349 surveyed, response rate 44.2%) and announced the Business DI. ■ Key Survey Results 1. The Business DI for March 2026 was 42.9, a decrease of 1.4 points from the previous month, deteriorating for the second consecutive month. The domestic economy, which had been on a gradual recovery trend, fell sharply due to soaring oil prices, rising fuel prices, and future uncertainty. The future economy is expected to remain weak with downside risks amidst increasing uncertainty. 2. For the first time in 2 years and 6 months, all 10 industries and all 10 regions deteriorated. The soaring oil prices due to the Middle East situation led to increased transportation costs, negatively impacting a wide range of industries. Furthermore, the instability of supply for oil-derived materials also had a negative effect. In terms of scale, all scales deteriorated for the first time in 11 months. 'Small and Medium Enterprises' were particularly affected by the sluggishness in 'Manufacturing' and 'Transportation & Warehousing'. 3. [This Month's Topics] Many companies expressed concerns about increased burdens from rising oil prices, difficulty sourcing related materials, stagnant movement of goods, and consumer self-protection. The next announcement is scheduled for May 8th (Friday) at 13:30. **[TDB Business Trend Survey Corporate Participants Wanted]** This survey is the largest monthly business sentiment survey in Japan, with over 23,000 companies cooperating nationwide. Companies willing to participate, please read the purpose of this survey and enter the necessary information from the **registration form**. *Cooperating companies can view 'Various DI Trend Tables' and 'Company Voice Lists'. (Details of benefits **here**) *** ### **** The Business DI for March 2026 was 42.9, a decrease of 1.4 points from the previous month, deteriorating for the second consecutive month. The domestic economy, which had been on a gradual recovery trend, fell sharply due to soaring oil prices, rising fuel prices, and future uncertainty. In March, soaring oil prices and supply concerns due to escalating Middle East tensions pushed up fuel costs, logistics costs, and raw material costs, leading to a deterioration in business sentiment across all scales, industries, and regions. Transportation & Warehousing and Retail were particularly severe, with delays in price pass-through and labor shortages exacerbating the earnings environment. On the other hand, for March, which had many negative factors, sales, production, and shipment volumes showed underlying resilience, and inbound tourism and spring break demand provided support. ### **** Going forward, high oil prices will put downward pressure on corporate earnings, logistics costs, and household burdens. A rise in policy interest rates and long-term interest rates will also weigh on capital investment. On the other hand, if government growth investments and continued wage increases can support household real purchasing power, the economy is expected to maintain its resilience. However, if the rapid depreciation of the yen, a sharp stock market decline, or instability in the Middle East situation and Japan-China relations intensifies, economic sentiment is likely to decline further. The future economy is expected to remain weak with downside risks amidst increasing uncertainty. ### **Industry Breakdown: All 10 Industries Deteriorate Simultaneously; Instability in Oil Procurement a Major Negative Factor** For the first time in 2 years and 6 months since September 2023, all 10 industries deteriorated. Soaring oil prices due to the Middle East situation led to increased transportation costs, negatively impacting a wide range of industries. Furthermore, the instability of supply for oil-derived materials and other items also had a negative effect. Additionally, rising labor costs due to deepening labor shortages, coupled with increased import values due to the weak yen, severely pressured corporate earnings. **'Transportation & Warehousing' (38.5)**… Down 5.3 points from the previous month. Deteriorated for the second month, falling into the 30s for the first time in 3 years and 1 month. Numerous voices from the trucking industry cited 'increase in fuel costs due to soaring oil prices caused by the Middle East situation' (General freight road transport). Furthermore, in maritime transport, unstable operating conditions continue due to geopolitical tensions around the Persian Gulf. As a result, serious negative impacts have occurred in both land and sea transport, such as vessel delays and extended voyage times due to diversions. **'Retail' (37.7)**… Down 2.5 points from the previous month. Deteriorated for the second month. 'Specialty Goods Retail' (down 5.4 points), including gas stations, fell sharply. 'Apparel, Textiles, and Accessories Retail' (down 2.0 points) declined again due to 'poor movement of spring items' following a cold snap in mid-March. On the other hand, 'Pharmaceuticals, Daily Necessities Retail' (up 2.3 points) improved for the third month, with many customers visiting due to influenza and pollen allergies. **'Manufacturing' (40.5)**… Down 1.3 points from the previous month. Deteriorated for the first time in 6 months. 'Chemical Manufacturing' (down 3.1 points) declined for the second month due to difficulties in sourcing oil-derived materials. Furthermore, 'Transportation Equipment Manufacturing' (down 1.1 points) deteriorated for the seventh month, affected by reduced production by major automobile manufacturers for exports to the Middle East. While 'Electrical Machinery Manufacturing' (down 1.9 points) remained robust, it also declined for the fifth month. Additionally, 'Food, Beverages, and Feed Manufacturing' (down 1.8 points) fell for the second month amidst rising input costs, with insufficient price pass-through. **'Services' (47.8)**… Down 0.8 points from the previous month. Deteriorated for the second month. 'Electricity, Gas, Water, Heat Supply' (down 5.8 points) fell sharply due to soaring fuel prices. 'Educational Services' (down 2.8 points) declined for the second consecutive month due to increased fixed costs and reviews of education spending driven by price expectations. 'Maintenance, Security, Inspection' (down 1.3 points), burdened by high labor costs, also deteriorated for the second month. On the other hand, 'Hotels & Inns' (up 5.8 points) recovered to the 50s due to spring break demand. ### **Scale-Based Breakdown: All Scales Deteriorate Simultaneously for the First Time in 11 Months; 'SMEs' Show Sluggishness in 'Manufacturing'** 'Large Enterprises', 'Small and Medium Enterprises', and 'Small Scale Enterprises' all deteriorated simultaneously for the first time in 11 months. For 'Small and Medium Enterprises', 'Manufacturing' including 'Chemical Manufacturing' turned negative due to the Middle East situation, and 'Transportation & Warehousing' fell to the 30s for the first time in 3 years and 1 month. **'Large Enterprises' (47.3)**… Down 1.5 points from the previous month. Deteriorated for the first time in 5 months. Concerns were heard about rising raw material costs due to the Middle East situation in 'Construction', which fell below 50 for the first time in 7 months. Furthermore, the deterioration in 'Transportation & Warehousing', directly hit by high fuel costs, also weighed heavily. **'Small and Medium Enterprises' (42.1)**… Down 1.4 points from the previous month. Deteriorated for the second month. Driven down by 'Manufacturing', including 'Chemical Manufacturing', which experienced rising raw material costs and shortages due to the worsening Middle East situation, and 'Transportation & Warehousing', which fell to the 30s for the first time in 3 years and 1 month. **'Small Scale Enterprises' (41.0)**… Down 1.6 points from the previous month. Deteriorated for the second month. 'Retail', including 'Gas Stations', fell to the low 30s due to 'decreased demand from price increases'. 'Manufacturing', including 'Building Materials, Furniture, Ceramics and Stone Products Manufacturing', also contributed to the decline. ### **Regional Breakdown: All 10 Regions Deteriorate for the First Time in 2 Years and 6 Months; Soaring Oil Prices and Other Factors as Negative Material** For the first time in 2 years and 6 months since September 2023, all 10 regions deteriorated. On a prefectural basis, there were 40 deteriorations, 6 improvements, and 1 unchanged. The impact and concerns from soaring oil prices due to the Middle East situation spread across each region. **'South Kanto' (46.3)**… Down 0.9 points from the previous month. Deteriorated for the second month. 'Retail', including 'Gas Stations', fell below 40 for the first time in 6 months. Furthermore, 'Services', including 'Professional Services', also dragged down the overall figures due to the impact of price hikes and subsequent sluggish consumption. **'Kinki' (41.7)**… Down 1.8 points from the previous month. Deteriorated for the second month. 'Wholesale' and 'Manufacturing', which fell into the 30s, were both major contributors. In 'Wholesale', some companies reported 'cannot send cargo to the Middle East'. **'Shikoku' (40.4)**… Down 2.3 points from the previous month. Deteriorated for the second month. 'Services', including 'Educational Services', declined significantly. 'Manufacturing', including 'Chemical Manufacturing', where concerns about securing raw materials were raised, also became a negative factor. ### **[This Month's Topics] Companies' Views on the Middle East Situation** * In addition to the cost burden from rising oil prices, many voices expressed concerns about difficulty sourcing related materials, stagnant movement of goods, and consumer self-protection. * The impact extends beyond energy-intensive industries to agriculture, forestry, fisheries, and construction sectors that utilize heavy oil and chemical fertilizers. * Teikoku Databank's survey suggests that the sharp rise in oil prices is expected to be a significant burden for both companies and households. [Company Attributes in the Survey]. 1. Survey Target (23,349 companies, 10,312 valid responses, response rate 44.2%) 2. Survey Items Business sentiment (current) and future outlook Management situation (sales, production/shipment volume, purchase/selling prices, inventory, capital investment willingness, employee numbers, overtime hours, perceived labor shortage, capital investment intention) and financial institutions' lending stance. 3. Survey Period/Method March 17 - March 31, 2026 (Internet survey) [About the Business Trend Index (Business DI)] ■ Purpose and Survey Items of TDB Business Trend Survey This is an index that comprehensively assesses the business judgment of companies nationwide. It was launched in May 2002 with the aim of grasping the actual state of the domestic economy. Monthly statistical surveys (business surveys) are conducted targeting over 26,000 companies nationwide regarding items related to corporate activities such as business judgment, corporate earnings, capital investment willingness, and employment environment. ■ Selection of Surveyed Companies Companies are selected from all industries and all scales nationwide, and those that have agreed to cooperate with the survey are included. ■ DI Calculation Method DI (Diffusion Index) is calculated by assigning scores to each of the 7 judgment categories provided by companies and multiplying these by the number of responses in each category. The Business DI is interpreted as 'good' if it is above 50 and 'bad' if it is below, with 50 being the dividing line (rounded to the second decimal place). No weighting is applied based on company size, and the calculation is based on 'one company, one vote'. ■ Company Size Classification To understand the reality that cannot be measured by capital or employee numbers alone amidst increasing corporate diversity, classification is done in accordance with the Small and Medium-sized Enterprise Basic Act, incorporating nationwide sales ranking data as follows: