TOKYO Japan's factory output fell more than expected in July, signalling a rocky start to the second half of the year for manufacturers as worries mount over growth in China and the global economy.

Industrial output fell 2.0% in July from the previous month, data from the Ministry of Economy, Trade and Industry showed on Thursday. The reading was worse than a median market forecast for a 1.4% drop and followed 2.4% growth in June.

Production of cars rose 0.6% thanks to easing supply chain constraints for automakers. Carmakers like Toyota and Honda have huge influence over other Japanese manufacturers through their vast supplier networks.

Output of electronic parts and devices fell 5.1%, while that of production machinery decreased 4.8%, driving the overall decline.

The soft factory output figures followed anaemic July trade data, which saw Japan's exports contract for the first time in more than two years due to faltering global demand for light oil and chip-making equipment.

Manufacturers surveyed by the industry ministry expect their output to rise 2.6% in August and increase 2.4% in September, Thursday's data also showed, although the forecasts typically tend to be more optimistic than actual outcomes.

Other data showed Japanese retail sales expanded 6.8% in July from a year earlier. It was higher than a median market forecast for a 5.4% gain and marked the 17th consecutive month of expansion since March 2022, backed by Japan's economic and tourism reopening from the COVID-19 pandemic.

Compared with the previous month, retail sales grew 2.1% in July, following a 0.6% decline in June, the data showed.

Japan's economy, the world's third-largest, is expected to contract by an annualised 1.2% in July-September, according to the latest Reuters poll, after rosy 6.0% growth in April-June.

(Reporting by Satoshi Sugiyama; Writing by Kantaro Komiya Editing by Chang-Ran Kim and Shri Navaratnam)