Japan’s Economic Rebound From Natural Disasters Fails to Impress

Feb 13 2019, 11:58 PMFeb 14 2019, 1:37 AMFebruary 13 2019, 11:58 PMFebruary 14 2019, 1:37 AM

(Bloomberg) -- Japan’s economy rebounded modestly in the final three months of 2018, as domestic demand drove growth while weakness in exports fueled concerns about a slowdown in China and elsewhere.

Gross domestic product expanded an annualized 1.4 percent in the three months through December, according to a Cabinet Office report Thursday, matching economists’ estimates. That followed the biggest contraction since 2014 during a natural disaster-hit third quarter.

Key Insights

A rebound in Japan offers policy makers some respite amid fears about global growth as China’s economy slows and the trade war between Washington and Beijing rumbles on. Still, the expansion failed to impress compared against a quarter badly affected by typhoons and an earthquake.
The increase in exports was weaker in scale than the previous quarter’s fall, suggesting that China’s slowdown is weighing on trade, as noted by economy minister Toshimitsu Motegi. Given a bigger jump in imports, net exports shaved 0.3 percentage point from quarterly growth, matching the biggest slice it has taken in the last five years.
"Exports were supposed to show a big jump after the previous fall but they just limped along. If you average all the data out, Japan’s economy is clearly slowing," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
The rebound won’t change the Bank of Japan’s resolve to continue with its current stimulus, given sagging inflation and uncertainties surrounding the global economy.
Prime Minister Shinzo Abe’s administration is looking for the economy to show solid momentum ahead of a potentially growth-sapping sales tax increase in October 2019.

What Our Economist Says...

“A bounce in capex was to be expected after a dip in 3Q -- and it registered in line with our estimate. More important is how durable the spending by businesses will be going forward,” said Bloomberg Economics’ Yuki Masujima. "Our view is that Japanese companies are eager to expand domestic capacity on a longer-term horizon. Any plans, though, could get knocked off track if external demand weakens further."

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Exports rose 0.9 percent from the previous quarter, compared with a 1.4 percent drop in July-September.
Business investment climbed 2.4 percent from the previous quarter. Economists’ median forecast was for a gain of 1.8 percent.
Private consumption increased 0.6 percent from the previous quarter. The median estimate was for a 0.7 percent gain.