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Japan's economy grows less than expected in third quarter

Update: November, 14/2019 - 11:56

TOKYO — Japanese growth slowed significantly in the third quarter of the year, according to government data released on Thursday, sparking concerns for the health of the world's third-biggest economy.

The economy expanded 0.1 per cent between July and September, a slowdown from the 0.4 per cent seen in the previous period, and much weaker than economists had forecast.

A drop in exports amid ongoing global trade tensions outweighed growth in domestic demand, the government said.

Analysts had expected a stronger pace of growth in the third quarter as consumers rushed to make purchases before a consumption tax hike from eight per cent to 10 per cent on October 1.

Japan's household spending surged 9.5 per cent year-on-year in September, according to official data released last week, as consumers rushed to complete purchases of furniture and other big-ticket items ahead of the rate rise.

But Kentaro Arita, senior economist at Mizuho Research Institute said: "The pre-tax shopping spree was not that strong, suggesting that the Japanese economy is not strong enough to maintain a sustainable recovery."

He predicted the economy would go into reverse in the fourth quarter as consumption slows after the tax hike.

Weak exports partly reflected worries over the US-China trade war, but if the fourth round of tariffs (by the US) is pushed back as expected, they will likely pick up, Arita forecast.

A slowdown in the IT sector is in the process of bottoming out, which could provide a pep to the economy in the fourth quarter.

Prime Minister Shinzo Abe's government twice delayed implementing the hike over fears it could hit the country's fragile economic growth.

But despite speculation of a further delay, the hike went ahead as planned on October 1.

Fears that the move could cause a recession have receded somewhat in recent months, and the government insists the increase is necessary to fund key policy priorities.

But historically, tax hikes have hit Japan's economy hard.

Both of the most recent increases - from three percent to five percent in 1997 and then to eight per cent in 2014 - were followed by recessions.

However, Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management, forecast that the Japanese economy would ride out the storm next year as it receives a likely boost from the Tokyo Olympics.

"Looking ahead to 2020, we believe the Japanese economy should remain resilient on the back of a concerted global economic recovery as central banks worldwide continue to maintain monetary policies geared towards easing," he said.

A solution to the US-China trade tensions should further boost Japanese exports, he added.

On a year-on-year basis, the economy grew by 0.2 per cent. Analysts had expected an expansion of as much as 1.0-per cent. — AFP

 

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