TOKYO • Japan's economy grew at the slowest pace in a year in the third quarter as the US-China trade war and soft global demand knocked exports, keeping policymakers under pressure to ramp up fiscal and monetary stimulus to bolster a fragile recovery.
Growth in private consumption also cooled from the previous quarter, casting doubt on the Bank of Japan's view that robust domestic demand will offset the impact from intensifying global risks.
The world's third-largest economy grew an annualised 0.2 per cent in the third quarter, slowing sharply from a revised 1.8 per cent expansion in April-June, preliminary gross domestic product (GDP) data released by the government showed yesterday.
It fell well short of a median market forecast for a 0.8 per cent gain and marked the weakest growth since a 2 per cent contraction in July-September last year.
"Domestic demand had made up for some of the weakness in external demand, but we cannot count on this to continue," said NLI Research Institute executive research fellow Taro Saito.
"A contraction in October-December GDP is a done deal. The economy may rebound early next year, but will lack momentum."
The feeble data may heighten calls from lawmakers for the government to boost fiscal spending to support the economy, which many fear will take a hit from a sales tax hike that took effect last month.
Private consumption grew 0.4 per cent in July-September, slowing from a 0.6 per cent increase in the previous quarter, despite stronger demand from households that sought to beat last month's tax hike.
Capital spending, a rare bright spot in the economy, rose 0.9 per cent in the third quarter, accelerating from the previous three months. That helped domestic demand add 0.2 percentage point to growth.
But external demand knocked 0.2 percentage point off GDP growth, as exports were hit by the protracted China-US trade war that has upended world supply chains.
Markets have been on edge in the past month as the United States and China seek to complete an initial trade deal to de-escalate their bitter tariff row.
The dispute has hit big exporters hard.
Japanese electronics giant Panasonic Corp last month reported a 12 per cent drop in its second-quarter operating profit due to slumping sales of electric components to factory owners.
Economy Minister Yasutoshi Nishimura said that while Japan's economy is likely to continue recovering moderately, the government will be vigilant to the impact from global risks and the sales tax hike.
The data comes as the government plans to compile measures for disaster relief and to protect the economy.