In the third quarter of 2018, Japan's economy was seen contracting more than expected. The decline came amid a string of natural disasters and a decrease in exports. The data underlines the concerns about the trade protection policies from the U.S. which is starting to take a toll on demand from overseas imports.
Japan, which is the world's third-biggest economy declined 0.3% on the quarter adding to concerns about slowing demand due to higher trade tariffs. Similar signs were seen elsewhere including China and the Eurozone where growth has sharply stalled.
On an annualized basis, Japan's economy fell 1.2% on the year ending September 2018. This was however slightly better than the median forecasts which signaled a growth rate of just 1.0%. The decline was a sharp slowdown after Japan's GDP surged 3.0% in the second quarter.
The annualized GDP growth rate was also lower than the average growth rate of 2.7% which was briefly breached in the second quarter.
Back then, Japan’s economy was seen enjoying the most extended uninterrupted patch of growth for nearly 28 years.
Japan's government however stuck to the view that the economy was recovering at a moderate pace. It blamed the contraction in the economy mainly on the weather which was seen halting production and hit consumption.
However, economists said that the one-off factors such as the weather alone was not to be blamed for the drastic downturn in output. There was a noticeably strong decline in exports as demand from China also fell, a fall out from the rising global trade tensions.
Japan's economy minister, Motegi said that the economy would recover led by a moderate rise in household income and tightening labor market. However, he said that the government was aware of the rising risks globally.
Speaking to reporters after the GDP release, Motegi said, "IT-related exports to Asia have been slowing from around spring, so we need to be mindful of the impact trade frictions, and China’s growth outlook could be having on Japan’s economy."
Economists speculate that China's economy is starting to decline due to the higher tariffs on its exports to the United States. As a result, the weaker demand is expected to hit other markets such as Japan and even the Eurozone. Growth in China is expected to slow and recover only around the first half of next year.
The external demand which is a measure of all exports minus the imports posted a 0.1% drag on the overall GDP. However, this was in line with the median expectations.
Exports were down 1.8% on the quarter which was the fastest pace of decline in more than three years. The weakness in the exports was seen as a sign that the protectionist policies are weighing on growth. This could eventually pressure policymakers to turn to more fiscal stimulus.
A further slowdown in the economy is expected to continue in the coming months as the full impact of the U.S. and China trade wars is yet to be felt.
The U.S. tariffs on imports from China will come into effect from January next year which could dampen exports from China. This is expected to have an indirect impact on Japan's exports including capital expenditure.
Japan's private consumption was also seen falling. Private consumption which contributes to more than 60% of the GDP fell 0.1% during the third quarter of the year. Consumers were seen spending less on travel, lodging, and dining.
Capital expenditure was down 0.2% which was the first decline in more than two years. The decrease in capital expenditure came due to lower spending on construction equipment.