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Japan economy shrinks after two years of growth

Japan economy shrinks after two years of growth

Japan's economy slid into reverse for the first time in two years at the beginning of the year, hit by sluggish consumption and a winter cold snap...

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16.05.2018 12:12 PM

Japan's economy slid into reverse for the first time in two years at the beginning of the year, hit by sluggish consumption and a winter cold snap, but analysts predicted the world's third-largest economy would quickly rebound.

The economy contracted by 0.2 percent quarter-on-quarter in the January-March period, compared with growth of 0.1 percent at the end of 2017, the Cabinet Office said Wednesday.

This brought to an end a series of eight consecutive quarters of growth, a winning streak not seen since the heady days of the "miracle" boom of the 1980s when the Japanese economy ruled the world.

The data will come as a blow for the vaunted economic policies of Prime Minister Shinzo Abe, who is already under pressure over a series of scandals.

But experts said they expected a pause in the growth trend rather than a prolonged downswing.

"There were one-off special factors in the January-March period, ranging from stock market sell-offs to higher vegetable prices due to bad weather," said Takeshi Minami, chief economist at Norinchukin.

The yen also strengthened against other major currencies on safe-haven buying, clouding the prospects for Japanese exporters.

"There are worries about some emerging economy markets but the global economy as a whole is likely to continue its recovery for some more time. (Japan's) GDP will likely come back to positive growth in April-June," Minami told AFP.

The economy was stalled by stagnant private consumption, which was flat in the January to March period after an uptick of 0.2 percent in the final quarter of last year.

Private residential investment also plunged another 2.1 percent after a 2.7 percent fall in the previous quarter.

And exports of goods and services slowed, rising 0.6 percent compared to an increase of 2.2 percent in the previous three months.

But despite the broad-based slowdown, Minami said the economy would remain solid.

"If you look at the Bank of Japan's 'Tankan' survey released in April, business confidence was unshaken, with corporate investment plans remaining solid," he said.

The key survey by the central bank last month showed confidence among Japan's biggest manufacturers had slipped after five quarters of rises but the headline index still remained close to the highest level in over a decade.

'Modest' recovery

Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust Group, also believed the disappointing first quarter figure was "a one-off event, as weak personal consumption coincided with other special factors."

"The Japanese economy should see a modest recovery buoyed by the global economy, with exports in particular benefitting from this, helping Japan's GDP revert back to an uptrend from Q2 2018 onwards," he said in a commentary earlier this week.

But SMBC Nikko Securities chief market economist Yoshimasa Maruyama warned that private consumption was weak even when the special factors were taken into consideration.

Consumers will keep purse strings tight "unless the pace of wage increases shows a clear acceleration", he said in a commentary published ahead of the data release.

Abe has launched a pro-spending policy blitz called "Abenomics" since he took office in late 2012, combining ultra-loose monetary policy and fiscal stimulus in a bid to pep up the former Asian economic powerhouse.

But consumer spending has remained stubbornly lacklustre, with companies staying stingy on wage hikes despite healthy profits.

Nevertheless, wages are finally showing signs of picking up and Minami from Norinchukin said that would feed through into consumer spending in the coming months.
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