TOKYO (Reuters) - Japan’s economy contracted in the third quarter, hit by natural disasters and a decline in exports, a worrying sign that trade protectionism is starting to take its toll on overseas demand.
The 1.2 percent annualized contraction in July-September was more than the median estimate for 1.0 percent growth in annual terms. It followed a robust 3.0 percent annualized growth in the previous quarter.
KEY POINTS
* Q3 GDP -1.2 pct annualized vs f’cast -1.0 pct
* Q3 GDP -0.3 pct qtr/qtr vs f’cast -0.3 pct qtr/qtr
* Exports -1.8 pct qtr/qtr, fastest decline in over 3 years
* Private consumption -0.1 pct vs +0.7 pct in Q2
COMMENTARY:
KYOHEI MORITA, CHIEF ECONOMIST JAPAN, CREDIT AGRICOLE
“Weakness in the third quarter economy can not be explained only by natural disasters and an earthquake in Hokkaido. The economy in the U.S. performed well in the third quarter but that of Europe and Japan was weak partly due to an inventory adjustment.
“We expect the economy will rebound in October-December but we need to see how it will perform in January-March to see the trend of the economy.
“The development of the U.S.-China trade friction and how it could impact on the Japanese economy is important to monitor but we don’t expect it will lead to the economic downturn as our main scenario.”
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE
“The contraction was caused by temporary and special factors such as bad weather. That said, it’s true Japan’s economic growth has been slowing as a trend even excluding one-off factors. Even if it rebounds in October-December, we cannot expect a return to high growth. The economy is likely to make a soft-landing toward low growth.”
“One factor behind the economy’s slowing trend is weakening external demand, which will put a lid on workers’ income gains. Further clouding the outlook, the U.S.-China trade war raises worries about global protectionism. There’s also a worry about capital flight from emerging markets due to U.S. rate hikes, while global trade volume struggles to grow. At home, tightening of labor market will cause a bottleneck in supply capacity, limiting room for Japan’s economic growth.”
“As for policy response, monetary policy has been stretched and it would be difficult to take additional easing steps. Fiscal measures have already been considered to offset a blow from the planned sales tax hike next year, so there’s little room left on this fronts too.
“What’s needed now is not stimulus to artificially boost the economy but to press ahead with structural reform in the way that will make the job market more flexible to ease labor shortages and supply constraints.”
MASAKI KUWAHARA, SENIOR ECONOMIST, NOMURA SECURITIES
“The contraction came in line with our forecasts. Declines in capex was a little surprising, and big drops in exports and slowdown in private consumption were caused in part by natural disasters. Global economic slowdown also dragged down exports.
“As temporary effects from natural disasters taper and exports recover as China’s economy pick up on policy effects, Japan’s economy will likely stage a firm rebound this quarter.
“But Japan’s economy may slow down from January onwards as the U.S.-China trade war intensifies. U.S. tariffs on its imports of Chinese goods take effect in January, curbing Chinese shipments, which will in turn damage Japanese exports and capital expenditure.
“Japan’s monetary easing has reached its limit and I don’t expect Japanese authorities to roll out additional fiscal steps either. Already the government has compiled a supplementary budget, which will serve as stimulus, and offsetting fiscal measures to cope with the planned sales tax hike next year are in the pipeline. Therefore there’s not much left to do.”
ATSUSHI TAKEDA, CHIEF ECONOMIST, ITOCHU ECONOMIC RESEARCH INSTITUTE
“The basic trend of the economy remained on the moderate expansion path although natural disasters and an earthquake in Hokkaido hurt it in the third quarter. We expect exports and private consumption will recover in the current quarter.
“The risk factor for the Japanese economy going ahead is whether the U.S.-China trade friction will intensify. If the trade conflict between the two nations worsens, that would weigh on the Japanese economy.
“The economy is expected to slow down next fiscal year due to negative effects of a planned sales tax hike, while the economies in the U.S. and China are also likely to slowdown. Both domestic and external demand is projected to soften next fiscal year.
“We expect the Bank of Japan will keep its current pace of monetary stimulus for a while.”
Reporting by Stanley White, Tetshshi Kajimoto and Kaori Kaneko; Editing by Shri Navaratnam
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