Japan's Q1 GDP shrinks 0.6% as private consumption dips

TOKYO • Japan's economy has moved past a rough stretch that ended a two-year run of growth, with forecasts pointing to renewed expansion as global demand regains traction.

Gross domestic product shrank 0.6 per cent on an annualised basis in the first quarter, according to revised data released yesterday, as a weaker reading of private consumption offset a stronger one for capital investment. That missed the median forecast of economists.

The downturn, partly caused by soft global demand, has probably passed, said Nomura Securities chief market economist Tomo Kinoshita. "Looking forward, we are more optimistic about the US and EU, and that should help Japan's exports regain momentum, and that should drive the overall economy," he told Bloomberg Television.

Private consumption remains soft - and an obstacle to the Bank of Japan's goal of generating 2 per cent inflation. It fell 0.1 per cent during the first quarter, the revised data showed yesterday, but that was the result of an upward revision to the fourth-quarter figure to growth of 0.3 per cent.

Export growth, capital investment and the tightest labour market in decades have yet to turn into the kind of robust wage gains and consumer spending that could fuel 2 per cent inflation.

"In principle, Japan is an export-driven economy, but domestic demand isn't following through," said Tokai Tokyo Research Centre chief economist Hiroaki Muto. "The problem is that disposable income isn't rising."

Capital investment has been on the rise for more than a year, but at a slow pace. The first-quarter result was revised higher to an increase of 0.3 per cent, up from a preliminary reading of -0.1 per cent. While economic growth is poised to resume, it is expected to be slower than the 1.7 per cent achieved last year.

And the reliance on external demand will leave Japan vulnerable amid escalating trade battles. "I expect exports will continue to be the driving force for Japan's recovery," said Mizuho Securities senior economist Norio Miyagawa, who pegged second-quarter growth at above 1 per cent on an annualised basis. "That is why anything (US President Donald) Trump tries to curb Japan's exports to the US could cloud the outlook for the economic recovery. We have to closely watch how the US and Japan will negotiate."

A separate data release showed Japan's current account surplus was 1.8 trillion yen (S$22 billion) in April.

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A version of this article appeared in the print edition of The Straits Times on June 09, 2018, with the headline 'Japan's Q1 GDP shrinks 0.6% as private consumption dips'. Print Edition | Subscribe