Japan: Economy comes to a near standstill in Q3
November 14, 2019
GDP expanded 0.2% in seasonally-adjusted annualized terms (SAAR) in Q3, well below the 1.8% (SAAR) expansion registered in Q2 and significantly undershooting market analysts’ expectations of a 0.8% increase. Meanwhile, GDP increased 1.3% in Q3 compared to the same quarter a year earlier, up from the 0.9% increase in Q2.
In SAAR terms, private consumption increased 1.4% in Q3, down from the 2.4% rise in Q2. Despite the deceleration, partially reflecting a decrease in private-sector worker earnings in the quarter and a concurrent slump in consumer confidence, the reading was still robust as households continued to frontload spending ahead of the 1 October sales tax hike. Moreover, government consumption growth slowed to 2.2% in Q3, down from 4.8% in Q2. Gross fixed capital formation, meanwhile, expanded 3.8% in Q3, down slightly from Q2’s 3.9% print and likely constrained by souring business confidence among large manufacturers, which fell to an over six-year low in the quarter.
On the external front, exports suffered from the protracted U.S.-China trade war that has hampered global economic growth, and, thus, demand for Japanese goods and services. Exports dropped 2.6% in SAAR terms in Q3, contrasting the 2.0% increase in Q2 and marking the third quarterly decrease in exports in little over than a year. Imports, for their part, increased a tepid 1.0% in Q3, down from Q2’s 8.8% increase. In sum, the external sector detracted 0.6 percentage points from economic growth in Q3, after detracting 1.2 percentage points in Q2.
Commenting on Q3’s result, Robert Carnell, chief economist of Asia-Pacific research at ING, said: “Perhaps the clue to today's figures was the recent suggestion by PM Abe that there would be a fiscal stimulus package to help the economy through the rest of this year and through fiscal 2020. From experience, such packages don't require any forecast response, as they usually mean that things are coming in worse than you had previously expected. And we can't expect any meaningful assistance on the growth front from the Bank of Japan, which despite protests to the contrary, is out of ammunition in our view.”
Author: Edward Gardner, Economist