Daily Management Review

Japan’s Q2 GDP Downgraded As Business Investment Is Hit By Trade War


Japan’s Q2 GDP Downgraded As Business Investment Is Hit By Trade War
A downward revision of business spending because of the United States – China trade war resulted in the Japanese economy growing at a slower than earlier estimated pace. This has raised concerns and several quarters have made frantic call =s for the Japanese central bank to further announce deeper stimulus this month itself.
The risks to growth of the Japanese economy included the overall weakness in the global economy and escalating trade protectionism policies which has increased pressure on the Bank of Japan (BOJ) to further extend its economic stimulus package at it scheduled meeting next week.
According to revised Japanese Cabinet Office data as issued on Monday, in the April-June quarter, the economic growth of the country was an annualized 1.3 per cent which was much slower than the earlier prediction of 1.8 per cent of annualized growth. This revised rate was similar to median forecast of economists.
Based on the revised annualized growth rate, the growth in the Japanese economy in the January-March quarter comes at 0.3 per cent compared to the initial estimates of a 0.4 per cent growth rate.
“There’s a possibility growth will turn negative in the October-December quarter,” said Izuru Kato, chief economist at Totan Research. “If worries about such negative growth deepen (in the coming months), the Bank of Japan could consider lowering interest rates further into negative territory.”
There was a 0.2 per cent rise in capital spending compared to the previous quarter which was much lower than earlier estimates of 1.5 per cent growth and the median forecast for a 0.7 per cent growth.
Government statisticians including a demand-side survey of capex in the revised GDP data was partly responsible for the capex downgrade. This consideration was not included in the preliminary estimates. This indicated weakness in the sector.
The re-escalation in U.S.-China trade war was the cause for manufacturers cutting down on spending during the quarter, said Stefan Angrick, senior economists at Oxford Economics. “While investment by non-manufacturers, particularly software-related, maintained robust growth, it was not enough to completely offset the contraction in spending by manufacturers,” Angrick said in a note.
Japanese manufacturing activity was shown to be declining for a fourth straight month in August in a private sector business survey published last week. The report also indicated a continued contraction for the ninth month in a row in export orders in August as well.
There was growth of just 0.6 per cent quarter-on-quarter in private consumption which constitutes about 60 per cent of Japan’s gross domestic product which was in line with previous estimates. 
There was a subtraction of 0.3 percentage point from revised GDP growth because of net exports - or exports minus imports, which indicated that the Japanese economy was being affected by the slowdown in global growth.
Risks of Japan’s exports being hit by declining manufacturing overseas and at home have clouded the outlook for the third-largest economy of the world.
And next month, Japan is set to increase its sales tax to 10 per cent which could also result in a fall in domestic consumption, which is one of the growth drivers of the economy, analysts and experts have warned.