Japan Q3 GDP seen shrinking on natural disasters, overseas economic slowdown

13-November-2018

Japan’s economy was expected to shrink in the third quarter after natural disasters disrupted production and a slowdown in overseas demand undermined exports, a Reuters poll found on Tuesday.

Strong typhoons in western Japan and a powerful earthquake in the northern island of Hokkaido forced some factories and major airports to close temporarily.

Spill over effects from the US-China trade dispute were also a worry, they said.

Gross domestic product (GDP) grew an annualised 3.0 percent in April-June on strong capital spending, the fastest growth since 2016, but was seen shrinking 0.3 percent quarter-on-quarter in July-September, an annualised rate of 1.0 percent.

“Data will likely show the economy was at a standstill,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

He sees the economy remaining on a recovery trend, led by the corporate sector, but noted that a slowdown in exports was a concern because some overseas markets were softening.

“We need to take heed of the risk that the pace of economic recovery in October-December in Japan may be weak – depending on the global economy.”

The poll found capital spending would be flat in July-September after growing 3.1 percent in the second quarter.

Analysts project capex will recover on demand for labour-saving technologies to cope with labour shortages and construction work for the 2020 Olympic Games in Tokyo.

Private consumption, which accounts for about 60 percent of GDP, was seen slipping 0.2 percent for the quarter, following a 0.7 percent gain in April-June.

External demand – or exports minus imports – was seen likely to take 0.1 percentage point off GDP growth, the poll showed.

SMBC Nikko Securities expects the economy will return to growth in the fourth quarter as it recovers from the effects of natural disasters.

“But…the global economy has already hit its peak and there is a growing risk that downward pressure from the Sino-U.S. trade war could intensify in 2019,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

Source: REUTERS