Japan’s economy saw a surprise 2.1% year-on-year expansion in the first quarter of 2019, beating the expectations of economists who had anticipated either a flat line or a fall.
While the GDP data, which was released by Tokyo’s Cabinet Office on Monday, appeared to forestall immediate concerns that Japan is either in or headed for a recession, wider economic concerns have not evaporated given weak exports, weaker imports, depressed capital expenditure and downbeat consumer sentiment.
These headwinds had been behind forecasters’ expectations. Economists cited by Bloomberg had anticipated a 0.2% contraction for the quarter.
The figures come amid the backdrop of an unpredictable global trade environment caused by the trans-Pacific trade war, which is heavily impacting China, Japan’s leading trade partner, and roiling regional supply chains.
However, there was one apparent stay of execution on Saturday, when the White House decided to delay, for six months, a decision to impose 25% auto tariffs on European Union and Japanese vehicles, in order to give trade negotiators more time to hammer out a deal.
What the numbers say
Japan’s 2.1% GDP rise in Q1 2019 follows a revised 1.6% expansion for the October-December period of 2018. Preliminary reports had found a mere 0.3% rise for that quarter, and in the previous quarter, Q3 2018, Japan had contracted 0.6%, according to economic information provider Fxstreet.
One Q1 boost certainly came from annualized 6.2% rise in public investment, but there are clearly still jitters in the private sector: The data found that capital expenditure fell 1.2% on an annualized basis.
“Due to the slowdown in overseas economies, mainly in China, sentiment among Japanese companies especially manufacturers, as well as households, is becoming more and more cautious,” said a Cabinet Office official, according to economic website Market Watch.
Moreover, the GDP expansion was aided by a 4.6% slump in imports – their biggest drop in a decade – and a 2.4% fall in exports. With imports falling faster than exports, net exports added 0.4 percentage point to GDP growth, Reuters reported from Tokyo.
Japan, which now enjoys such full employment that it is importing overseas labor, still suffers from weak wage growth, and in Q1 private consumption slid 0.1%.
It is unclear whether the latest data will encourage or discourage Prime Minister Shinzo Abe, who is mulling a controversial rise in the consumption tax, from 8% to 10%, in October.
The tax rise has already been put on hold twice. The momentum for it is driven by a perceived need to rein in Japan’s massive, but still well-funded, public debt.