Japan’s economy unexpectedly contracted for the first time in a year in the third quarter, adding to uncertainty about the outlook due to the risk of a global recession, a weak yen and higher import costs have affected consumption by households and businesses.
The world’s third-largest economy has struggled to thrive despite the recent lifting of Covid regulations, and faces growing pressure from red-hot global inflation, deep interest rate hikes and more. worldwide and the Ukraine war.
Gross domestic product fell 1.2% year-on-year in July-September, official data showed, compared with economists’ median estimates for a 1.1% increase and a 4.6% increase. adjusted for the second quarter.
It translates into a quarterly decline of 0.3%, compared with the forecast 0.3% growth.
In addition to being held back by a global slowdown and soaring inflation, Japan has faced the challenge of the yen sliding to a 32-year low against the dollar, which has increased tensions. Straighten the cost of living by raising the price of everything from fuel to food items.
Atsushi Takeda, chief economist at the Itochu Institute for Economic Research, said: “The decline was unexpected, adding that the biggest deviation was larger-than-expected imports.
“However, the three main pillars of demand – consumption, capital expenditure and exports – remain positive, if not strong, so demand is not as weak as the headline figure suggests. .”
However, the risks to Japan’s outlook have increased as the global economy is on the brink of recession.
Economy Minister Shigeyuki Goto said the global economic downturn could affect households and businesses.
Domestically, policymakers and citizens are bracing for a potential eighth wave of the Covid pandemic, adding to the gloom for private consumption, which accounts for more than half of Japan’s economy.
In the third quarter, private consumption increased by 0.3%, higher than the consensus estimate of 0.2% growth but slowing significantly from the 1.2% increase in the second quarter.
Darren Tay, Japan Economist at Capital Economics, said: “Growth will turn positive in Q4, amid a rebound in domestic tourism and a smaller trade deficit, but a second virus wave. 8 and rising inflation will limit the recovery.”
Tay noted that non-residential investment grew 1.5% quarter-on-quarter, below consensus of 2.1% and Capital Economics’ own estimate of a strong 3% growth.
Exports rose 1.9% but were dwarfed by a sharp increase in imports, meaning external demand subtracted 0.7 percentage points from 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 ($106.45 billion) in extra spending in the budget. The Bank of Japan has also maintained an extremely loose monetary stimulus program to help revive the economy.
Capital Economics’ Tay sees a difficult 2023 for Japan.
“For 2023, Japan will be dragged into a mild recession in the first half of the year as the global slowdown will affect exports and business investment.”
