Japan’s economy unexpectedly contracted for the first time in a year in the third quarter, further adding to uncertainty about the outlook as global recession risks, a weak yen and higher import costs weighed on household consumption and businesses.
The world’s third-largest economy has struggled to get going despite the recent lifting of Covid restrictions and has faced mounting pressure from red-hot global inflation, sweeping global interest rate hikes and the Ukraine war.
Gross domestic product fell 1.2 percent year-on-year in July-September, official data showed, compared with economists’ average estimate of a 1.1 percent expansion and a revised 4.6 percent rise in the second quarter.
It translated to a quarterly decline of 0.3%, against a forecast of 0.3% growth.
In addition to being squeezed by a global slowdown and rising inflation, Japan faces the challenge of the yen slipping to 32-year lows against the dollar, which has added to cost-of-living pressures by further raising the price of everything from fuel to food.
“The contraction was unexpected,” said Atsushi Takeda, chief economist at the Itochu Institute of Economic Research, adding that the biggest deviation was larger-than-expected imports.
“But the three main pillars of demand – consumption, capital expenditure and exports – remained in positive territory, if not strong, so demand is not as weak as the headline suggests.”
But risks to Japan’s outlook have grown as the global economy teeters on the brink of recession.
Economy Minister Shigeyuki Goto said a global recession could hit households and businesses.
At home, policymakers and citizens are bracing for a possible eighth wave of the Covid pandemic, adding to the gloom over private consumption that makes up more than half of the Japanese economy.
In the third quarter, private consumption rose 0.3%, a touch above the consensus estimate of 0.2% growth, but slowing sharply from the second quarter’s 1.2% gain.
“Growth should turn positive in the fourth quarter amid a rebound in inbound tourism and a smaller trade deficit, but the eighth wave of the virus and rising inflation will limit the recovery,” said Darren Tay, Japan economist at Capital Economics.
Tay noted that non-residential investment rose 1.5% quarter-on-quarter, below consensus of a 2.1% rise and Capital Economics’ estimate of a strong 3% growth.
Exports rose 1.9% but were swamped by big gains in imports, meaning external demand took 0.7 percentage points off GDP.
Prime Minister Fumio Kishida’s government is stepping up support for households to try to cushion the effects of inflation, with 29 trillion yen ($206.45 billion) in extra spending in the budget. The Bank of Japan also maintained its ultra-loose monetary stimulus program to help revive the economy.
Capital Economics’ Tay sees a tough 2023 for Japan.
“Looking to 2023, Japan will be dragged into a mild recession in the 1st half by a global recession that will weigh on exports and business investment.”
title: “Japan S Economy Is Shrinking For The First Time In A Year "
ShowToc: true
date: “2022-12-22”
author: “Carol Smith”
Japan’s economy unexpectedly contracted for the first time in a year in the third quarter, further adding to uncertainty about the outlook as global recession risks, a weak yen and higher import costs weighed on household consumption and businesses.
The world’s third-largest economy has struggled to get going despite the recent lifting of Covid restrictions and has faced mounting pressure from red-hot global inflation, sweeping global interest rate hikes and the Ukraine war.
Gross domestic product fell 1.2 percent year-on-year in July-September, official data showed, compared with economists’ average estimate of a 1.1 percent expansion and a revised 4.6 percent rise in the second quarter.
It translated to a quarterly decline of 0.3%, against a forecast of 0.3% growth.
In addition to being squeezed by a global slowdown and rising inflation, Japan faces the challenge of the yen slipping to 32-year lows against the dollar, which has added to cost-of-living pressures by further raising the price of everything from fuel to food.
“The contraction was unexpected,” said Atsushi Takeda, chief economist at the Itochu Institute of Economic Research, adding that the biggest deviation was larger-than-expected imports.
“But the three main pillars of demand – consumption, capital expenditure and exports – remained in positive territory, if not strong, so demand is not as weak as the headline suggests.”
But risks to Japan’s outlook have grown as the global economy teeters on the brink of recession.
Economy Minister Shigeyuki Goto said a global recession could hit households and businesses.
At home, policymakers and citizens are bracing for a possible eighth wave of the Covid pandemic, adding to the gloom over private consumption that makes up more than half of the Japanese economy.
In the third quarter, private consumption rose 0.3%, a touch above the consensus estimate of 0.2% growth, but slowing sharply from the second quarter’s 1.2% gain.
“Growth should turn positive in the fourth quarter amid a rebound in inbound tourism and a smaller trade deficit, but the eighth wave of the virus and rising inflation will limit the recovery,” said Darren Tay, Japan economist at Capital Economics.
Tay noted that non-residential investment rose 1.5% quarter-on-quarter, below consensus of a 2.1% rise and Capital Economics’ estimate of a strong 3% growth.
Exports rose 1.9% but were swamped by big gains in imports, meaning external demand took 0.7 percentage points off GDP.
Prime Minister Fumio Kishida’s government is stepping up support for households to try to cushion the effects of inflation, with 29 trillion yen ($206.45 billion) in extra spending in the budget. The Bank of Japan also maintained its ultra-loose monetary stimulus program to help revive the economy.
Capital Economics’ Tay sees a tough 2023 for Japan.
“Looking to 2023, Japan will be dragged into a mild recession in the 1st half by a global recession that will weigh on exports and business investment.”
