Japan’s economy likely shrank in first quarter on weak domestic demand, exports: Reuters poll

A shopper looks at shoes next to signs advertising sales at a shopping district in Tokyo
FILE PHOTO: A shopper looks at shoes next to signs advertising sales at a shopping district in Tokyo, Japan May 16, 2018. REUTERS/Issei Kato

May 10, 2019

TOKYO (Reuters) – Japan’s economy likely contracted slightly in the first quarter as corporate and consumer spending weakened, a Reuters poll showed on Friday.

Exports also deteriorated amid trade disputes and weaker global demand, hurting the trade-reliant economy.

Gross domestic product (GDP) is expected to have fallen 0.2% in January-March on an annualized basis, the poll of 18 economists showed, after it expanded 1.9% in the fourth quarter last year.

That would translate into a flat reading on a quarter-on-quarter basis, after the economy grew 0.5% in the October-December quarter, the poll showed.

“Firms likely postponed their capital spending on worries about the global economic slowdown and uncertainty over trade talks such as between the United States and China,” said Kentaro Arita, senior economist at Mizuho Research Institute.

“We expect consumer spending declined as their sentiment deteriorated led by factors such as rises in food prices.”

Capital spending likely fell 1.7% in the first quarter after 2.7% growth the previous quarter, the poll found.

Private consumption, which accounts for about 60 percent of GDP, was seen down 0.1% for the quarter, after rising 0.4% in October-December.

External demand – or exports minus imports – was still expected to add 0.3 percentage point to growth in the first quarter, the poll found, after it subtracted 0.3 percentage point from GDP growth in the previous quarter.

Analysts say a drop in imports due to weak domestic demand was larger than a decline in exports, which led Japan’s net exports to improve for January-March.

“We project exports will grow moderately but they will lose momentum on the global economic slowdown,” said Akane Yamaguchi, researcher at Daiwa Institute of Research.

Like other Asian exporters, Japan has been hit by China’s economic slowdown and the 10-month-long U.S.-China trade war, which has disrupted global supply chains. Sluggish demand for electronic gadgets has also hit its hi-tech exports.

On Friday, the U.S. sharply raised tariffs on Chinese goods and China said it would retaliate, adding to uncertainty over external demand in the second half of the year.

Japan ships parts and heavy machinery to manufacturers in China.

The Cabinet Office will release the GDP data on May 20 at 8:50 a.m. Japan time (2350 GMT, May 19).

Japan’s current account balance is expected to show a 3.16 trillion yen ($28.80 billion) surplus in March from 2.68 trillion yen in February, thanks to income gains from overseas investment, analyst said.

The government will announce current account balance data at 8:50 a.m. on May 14.

(Reporting by Kaori Kaneko; Editing by Kim Coghill)

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