Natural disasters and a drop in exports resulted in a contraction of the Japanese economy more than was expected by the markets. Analysts said that this was a clear indication that the economy was being affected by trade protectionism and tariffs and was impacting export demand of Japanese products.
Compared to the median estimate for 1 percent growth in annual terms, the July-to-September period noted an annualised contraction of 1.2 percent. In the previous quarter , the Japanese economy reported a robust 3 percent annualised growth.
The main reason that analysts cited for the contraction was a drop in domestic demand because of natural disasters during the period when the country was hit by a powerful earthquake which stopped production and work in many factories and stifled consumption. But some analysts pointed out that this was a temporary disruption to economic activity and the main cause was a drop in export demand which was more a cause of worry than domestic demand drop.
There was a loss of about one tenth of a percentage in the gross domestic product because of a fall in external demand — which is denoted by exports minus imports. This loss was the same as the median estimate, but when the data was dissected, it revealed that there was a quarter-to-quarter drop of 1.8 per cent in exports fell 1.8 percent quarter-on-quarter which is the fastest drop in over three years for the economy.
While analysts expect a rebound in the Japanese economy in the current quarter, they also warn that the strong headwinds from drop in exports demand could be signals that the rebound could be impeded by trade protectionism which in turn could force policy makers to make use of fiscal stimulus measures to turn the tide of the economy.
“Japan’s economy is expected to recover driven mainly by domestic demand,” Toshimitsu Motegi, Japan’s economy minister, said in a statement issued after the data release.
“IT-related exports to Asia have been slowing from around spring,” he said, referring to information technology, “so we need to be mindful of the impact trade frictions and China’s growth outlook could be having on Japan’s economy.”
During the reporting period, there was a drop of 0.1 per cent in the private consumption in the economy which makes up about 60 percent of Japan’s GDP. This drop was however less than the 0.2 per cent median estimate drop. The previous quarter, there was a 0.7 per cent increase in the same number.
There was a 0.2 per cent drop in capital expenditure which is the first time such a decline has taken place in the last two years.
Japan was hit by a series of natural disasters in September when the country was hit by a large earthquake resulting in a blackout in the northern island of Hokkaido. Following this the economy was also hit by severe typhoons leading to damage to airports and transport infrastructure in western Japan.
“The decline in exports cannot be attributed entirely to the natural disasters,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.
“Excluding natural disasters, exports to China are slowing. The message is China’s economy is weakening, which means Japan’s exports will be slow to recover and growth will stall around the first half of next year.”
(Adapted to NYTimes.com)