Japan’s economy contracted in the third quarter

According to preliminary estimates, Japan’s economic product fell by 0.3 per cent in the third quarter. A quarter-on-quarter increase of 0.7 per cent had been reported in the previous quarter. Especially investments and exports suffered heavily in the third quarter. Consumer demand, which had still been showing strong buoyancy in the spring, fell slightly. Ultimately, only public sector consumption had a positive impact with a growth rate of 0.2 per cent.

These declines have clear reasons: After the middle of the year there was a series of earthquakes in Japan which temporarily impaired transport and logistics as well as the companies’ production activities. Other weather conditions were also poor. A more severe and protracted typhoon season had negative effects on economic activity.

Looking at consumer spending the slacker demand for seasonal goods and above all in the tourism segment certainly need to be taken into account here. Especially visitors from China, the number of which had increased very strongly in the last few years and who usually spend heavily, stayed away in droves because of the adverse weather conditions. As regards investments, a sharp decline in demand had already been indicated in September by the steep drop in engineering orders. Exports suffered from the aforementioned production shutdowns as well as from dips in demand from China and the current disputes surrounding US foreign trade policy.

The adverse weather conditions are exceptional factors that had only a temporary effect. So it is very likely that the final quarter will see catch-up effects at least in some cases which will pull the GDP growth rate back into positive territory again. The government also hinted recently that it will attach greater importance again to a somewhat more expansionary fiscal policy. Thanks to a less stringent immigration policy in some sectors of industry (e.g. construction, services) significant job creation has been reported. All this suggests that Japan will soon have left the negative one-off effects of the third quarter behind it.

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