Japan's economy just shrunk for the first time in over 2 years

Japan's economy expected to show sluggish growth in first quarter

Domestic demand lopped 0.2 percentage points (ppts) of quarterly growth, driven lower by declines in housing investment and private business inventories. "Consumers will keep purse strings tight unless the pace of wage increases shows a clear acceleration", said SMBC Nikko Securities Chief Market Economist Yoshimasa Maruyama.

The economy was dragged down by sluggish private consumption and capital expenditure.

The GDP deflator fell 0.2% on year, defying forecasts for a gain of 0.3% following the flat reading in the previous three months.

Japanese government data on preliminary GDP figures for the January-to-March period shows that the country's economy shrank for the first time in 9 quarters.

"The Japanese economy should see a modest recovery buoyed by the global economy, with exports in particular benefitting from this, helping Japan's GDP revert back to an uptrend from Q2 2018 onwards", he said in a commentary earlier this week.

Slower export growth reflected a decline in shipments of mobile phone parts and factory equipment in the quarter, a government official said.

Economists don't expect the period of contraction to last long.

This is a concern for Japanese manufacturers because many of these machines and electronic components are sent to China, where they are used to produce goods for export, but this trade is at risk if the Trump administration's threatened tariffs on Chinese exports go ahead.

"The economy is unlikely to continue to contract further".

The limp first-quarter performance was spread across different areas of the economy, according to Marcel Thieliant, senior Japan economist at research firm Capital Economics.

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