Japan's industrial output shrivelled in November, as flooding in Thailand added to woes for companies already battling a strong yen and the global economic chill. Factory production dropped 2.6 percent month-on-month, worse than market expectations of a 0.7 percent fall, government data showed. Production of passenger cars and mobile phones were among the hardest hit as Japanese-run plants in Thailand were crippled by devastating floods that hit the country. Output rose 2.2 percent month-on-month in October. "The biggest factor behind the November reading was the flooding in Thailand," said Satoshi Osanai, an economist at Daiwa Institute of Research. "Factories in Thailand hardly operated early in the month." "But a slump in factory output was already expected for the month, so it was not so surprising although the drop was bigger than expected," he said. Japan's crucial export sector has been squealing for months over the value of the yen, which is hovering around post-war highs against the dollar. A strong yen makes Japanese exports more expensive abroad and eats away at repatriated profits. Despite the slowdown, Tokyo said it expected an uptick in the months ahead, with factory output jumping 4.8 percent in December and 3.4 percent in January based on surveys of companies. The government said the overall production trend was flat. Barclays Capital economist Yuichiro Nagai said on the whole the report was positive because of the surprisingly robust forecasts. He noted in particular that the automobile industry expects a 12.7 percent bump in December and a 6.0 percent rise in January. "Expectations from this industry usually match the actual outcome, so we can have confidence in these figures," Nagai told Dow Jones Newswires. Daiwa's Osanai said his economic outlook for December and January was in line with the government report, although the official forecast figures were surprisingly strong. "I think production will show a healthy recovery after the temporary plunge due to the flooding," he said. But he said the long-term outlook was clouded by a stumbling global economy, which is suffering because of the European sovereign debt crisis. "Production in general machinery is growing weaker," Osanai said. "Globally, the demand for electronic devices and information technology products is slowing, something illustrated well by demand for televisions. "Output of semiconductor machinery is getting weak, which also shows a slowing demand for IT products," he said. Production of liquid crystal display (LCD) televisions plunged 75 percent while semiconductor products machinery was down 43.6 percent in November from a year earlier, the data showed. "I am afraid that the slowdown in industrialised nations is reaching the Asian economies, namely China," he said. A separate economic report showed Wednesday that Japan remained mired in deflation, with its core consumer prices falling 0.2 percent in November from a year earlier. The reading was in line with market expectations. The core consumer price index (CPI), which excludes volatile food prices, edged down 0.1 percent in October. Japan is "unlikely to exit its long-lasting deflation, at least for next year, as CPI data showed that deflationary pressure remains strong basically due to weak wage growth," Mizuho Research and Consulting senior economist Norio Miyagawa said. Japan's jobless rate remained flat at 4.5 percent in November from the previous month, another government report said on Wednesday. The figure was in line with market forecasts.