Japan's economy unexpectedly contracted for the first time in a year in the third quarter, raising concerns about the outlook as global recession risks, a weak yen, and higher import costs weighed on household consumption and businesses.
Despite the recent lifting of COVID restrictions, the world's third-largest economy has struggled to keep up with red-hot global inflation, sweeping interest rate increases around the world, and the Ukraine war.
Official data show that GDP fell 1.2% year on year in July-September, compared to economists' median estimate of 1.1% growth and a revised 4.6% rise in the second quarter.
It resulted in a 0.3% quarterly decline versus a 0.3% growth forecast.
In addition to being squeezed by a global slowdown and soaring inflation, Japan has faced the challenge of the yen's fall to 32-year lows against the dollar, which has exacerbated cost-of-living strains by raising the price of everything from gasoline to food.
"The contraction was a surprise," said Takeshi Minami, chief economist at Norinchukin Research Institute.
The lifting of COVID restrictions provided some relief, according to Minami, but "the outlook was clouded by uncertainty" about new virus cases.
"While the rise of inbound tourists is a bright spot for October-December and beyond, we see downside risks from the rising price of goods and the fear of another outbreak," he said."
The risks to Japan's outlook have increased as the global economy approaches recession.
According to Economy Minister Shigeyuki Goto, a global recession could affect both households and businesses.
Domestically, policymakers and citizens are bracing for a potential eighth wave of the COVID pandemic, which will add to the gloom for private consumption, which accounts for more than half of the Japanese economy.
Private consumption increased by 0.3% in the third quarter, slightly above the consensus estimate of 0.2% growth but significantly slower than the 1.2% increase in the second quarter.
The data suggested that consumer spending will remain under pressure in the coming months, with real employee compensation falling 1.6% in the third quarter, marking the second consecutive quarter of declines and extending the previous quarter's 1.2% decline.
"Growth should turn positive in Q4, amid a rebound in inbound tourism and a smaller trade deficit, but the eighth virus wave and rising inflation will limit the recovery," said Darren Tay, Japan Economist at Capital Economics.
Tay noted that non-residential investment increased by 1.5% quarter on quarter, falling short of the consensus of 2.1% and Capital Economics' own estimate of 3.0% growth.
Exports increased by 1.9% but were swamped by large increases in imports, resulting in a 0.7 percentage point drop in GDP from external demand.
With 29 trillion yen ($206.45 billion) in additional spending in the budget, Prime Minister Fumio Kishida's government is stepping up support for households in an effort to mitigate the effects of cost-push inflation. The Bank of Japan has also kept its ultra-easy monetary stimulus program in place to help the economy recover.
Tay of Capital Economics forecasts a difficult 2023 for Japan.
"As for 2023, Japan will be dragged into a mild recession in H1 by a global downturn that will weigh on exports and business investment."
(Source:www.usnews.com)
Despite the recent lifting of COVID restrictions, the world's third-largest economy has struggled to keep up with red-hot global inflation, sweeping interest rate increases around the world, and the Ukraine war.
Official data show that GDP fell 1.2% year on year in July-September, compared to economists' median estimate of 1.1% growth and a revised 4.6% rise in the second quarter.
It resulted in a 0.3% quarterly decline versus a 0.3% growth forecast.
In addition to being squeezed by a global slowdown and soaring inflation, Japan has faced the challenge of the yen's fall to 32-year lows against the dollar, which has exacerbated cost-of-living strains by raising the price of everything from gasoline to food.
"The contraction was a surprise," said Takeshi Minami, chief economist at Norinchukin Research Institute.
The lifting of COVID restrictions provided some relief, according to Minami, but "the outlook was clouded by uncertainty" about new virus cases.
"While the rise of inbound tourists is a bright spot for October-December and beyond, we see downside risks from the rising price of goods and the fear of another outbreak," he said."
The risks to Japan's outlook have increased as the global economy approaches recession.
According to Economy Minister Shigeyuki Goto, a global recession could affect both households and businesses.
Domestically, policymakers and citizens are bracing for a potential eighth wave of the COVID pandemic, which will add to the gloom for private consumption, which accounts for more than half of the Japanese economy.
Private consumption increased by 0.3% in the third quarter, slightly above the consensus estimate of 0.2% growth but significantly slower than the 1.2% increase in the second quarter.
The data suggested that consumer spending will remain under pressure in the coming months, with real employee compensation falling 1.6% in the third quarter, marking the second consecutive quarter of declines and extending the previous quarter's 1.2% decline.
"Growth should turn positive in Q4, amid a rebound in inbound tourism and a smaller trade deficit, but the eighth virus wave and rising inflation will limit the recovery," said Darren Tay, Japan Economist at Capital Economics.
Tay noted that non-residential investment increased by 1.5% quarter on quarter, falling short of the consensus of 2.1% and Capital Economics' own estimate of 3.0% growth.
Exports increased by 1.9% but were swamped by large increases in imports, resulting in a 0.7 percentage point drop in GDP from external demand.
With 29 trillion yen ($206.45 billion) in additional spending in the budget, Prime Minister Fumio Kishida's government is stepping up support for households in an effort to mitigate the effects of cost-push inflation. The Bank of Japan has also kept its ultra-easy monetary stimulus program in place to help the economy recover.
Tay of Capital Economics forecasts a difficult 2023 for Japan.
"As for 2023, Japan will be dragged into a mild recession in H1 by a global downturn that will weigh on exports and business investment."
(Source:www.usnews.com)
