Japan’s economy contracts as recession risks grow
Japan's economy contracts as recession risks grow Reuters
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Summary
- Q3 GDP -2.1% annualised, -0.5% qtr/qtr
- Consumption -0.0% qtr/qtr, capex -0.6%, exports +0.5%
- Japan lacks growth driver as global headwinds intensify
Introduction
Japan’s economy contracted in July-September, snapping two straight quarters of expansion on soft consumption and exports, complicating the central bank’s efforts to gradually phase out its massive monetary stimulus amid rising inflation.
Economic Performance
The data suggests stubbornly high inflation is taking a toll on household spending, and adding to the pain for manufacturers from slowing global demand including in China.
Economist’s View
“Given the absence of a growth engine, it wouldn’t surprise me if the Japanese economy contracted again in the current quarter. The risk of Japan falling into recession cannot be ruled out,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The weak growth and the spectre of slowing inflation could delay the BOJ’s exit from negative interest rates,” he said.
GDP Data
Gross domestic product (GDP) in the world’s third-largest economy contracted 2.1% in the third quarter, government data showed on Wednesday, a much larger decline that a median market forecast for an annualised 0.6% fall. It followed an expansion of 4.5% in the previous quarter.
Factors Affecting Growth
The weak reading reflects lacklustre consumption and capital expenditure, dashing policymakers’ hopes for a post-pandemic rebound in domestic activity to offset weaker external demand from China and elsewhere.
Consumption was flat in July-September after sliding 0.9% in the previous quarter, falling short of economists’ median estimate for 0.2% growth.
Capital expenditure fell 0.6% in the third quarter after declining 1.0% in April-June, confounding market forecasts for a 0.3% gain and casting doubt on the BOJ’s view that robust corporate investment will underpin growth.
External demand shaved 0.1 of a percentage point off GDP in July-September, in line with expectations, as an increase in service imports offset rises in auto exports.
Economist’s Analysis
“The disappointing third-quarter reading serves as a sobering reminder that the country is not yet out of the woods,” said Stefan Angrick, senior economist at Moody’s Analytics.
He said better net exports, underpinned by car shipments and tourism, helped lift growth in the second quarter, belying the weakness in domestic demand.
“Now that the export recovery has run its course, that weakness is coming back to the fore,” Angrick said.
Recovery Challenges
Japan’s economy had been making a delayed recovery from the pandemic as it re-opened borders and removed curbs on activity, leading in part to the strong April-June growth.
While the weak yen has given big exporters windfall profits, wages have not risen quickly enough to compensate households for the steady rise in inflation.
Inflation-adjusted real wages, a barometer of consumer purchasing power, fell 2.4% in September from a year earlier to mark the 18th straight month of declines.
Prime Minister Fumio Kishida has stepped up calls for firms to hike pay and announced a package of measures to cushion the economic blow from rising living costs, though analysts doubt the measures will have much effect in stimulating the economy.
Conclusion
The contraction in Japan’s economy highlights the challenges it faces in achieving sustainable growth and meeting the Sustainable Development Goals (SDGs). The weak performance in consumption, capital expenditure, and exports underscores the need for targeted policies to address these issues and promote inclusive and sustainable economic development. It is crucial for Japan to find a growth driver amid global headwinds and ensure that the benefits of economic growth are shared equitably among its population.
Sources
- Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Sam Holmes
- Our Standards: The Thomson Reuters Trust Principles.
SDGs, Targets, and Indicators Analysis
1. Which SDGs are addressed or connected to the issues highlighted in the article?
- SDG 8: Decent Work and Economic Growth
- SDG 10: Reduced Inequalities
- SDG 12: Responsible Consumption and Production
The article discusses the contraction of Japan’s economy, which is related to issues of economic growth, inequality, and consumption patterns.
2. What specific targets under those SDGs can be identified based on the article’s content?
- SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
- SDG 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality
- SDG 12.2: By 2030, achieve the sustainable management and efficient use of natural resources
The article highlights the contraction of Japan’s economy, indicating a decline in economic growth. This is relevant to SDG 8.1. The mention of rising inflation and its impact on household spending relates to SDG 10.4, which aims to reduce inequalities. Additionally, the discussion of consumption patterns and the need for sustainable resource management connects to SDG 12.2.
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
- GDP growth rate
- Inflation rate
- Household spending
- Capital expenditure
The article mentions the contraction of Japan’s GDP, indicating a decline in economic growth. This can be measured using the GDP growth rate indicator. The mention of rising inflation and its impact on household spending suggests the need to monitor the inflation rate and household spending as indicators of progress towards reducing inequalities. The decline in capital expenditure also highlights the need to track this indicator to assess economic growth.
SDGs, Targets, and Indicators Table
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries | GDP growth rate |
| SDG 10: Reduced Inequalities | SDG 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality | Inflation rate, household spending |
| SDG 12: Responsible Consumption and Production | SDG 12.2: By 2030, achieve the sustainable management and efficient use of natural resources | Capital expenditure |
Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.
Source: reuters.com
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