Japan’s Q1 GDP grows at faster pace, but trade war blunts outlook

Japanese consumer spending remained weak as wages have not risen as previously expected. (Reuters)
Updated 10 June 2019

Japan’s Q1 GDP grows at faster pace, but trade war blunts outlook

  • Japanese economy grew at an annualized 2.2 percent in January-March
  • The world’s third-largest economy is facing growing downward pressure as the US-China trade war intensifies and global demand wanes

TOKYO: Japan’s economy grew slightly faster than initially estimated in the first quarter, thanks to stronger capital spending, but analysts say global trade tensions remain a drag on growth and raise risks to the outlook for the export-reliant nation.
The world’s third-largest economy is facing growing downward pressure as the US-China trade war intensifies and global demand wanes, while at home consumers are reluctant to spend.
“Although capital spending was revised up, it is expected to deteriorate as foreign demand continues to weaken due to the US-China trade tensions,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.
“Consumer spending remains weak as wages have not risen as previously expected. If external demand worsens further, it could dampen both corporate and consumer sentiment and rein in their spending.”
The economy grew an annualized 2.2 percent in January-March, stronger than economists’ forecast for 2.1 percent annualized growth and the preliminary reading of the same rate of expansion, Cabinet Office data showed on Monday. In the fourth quarter, gross domestic product (GDP) rose an annualized 1.8 percent.
The annualized growth rate translates into quarter-on-quarter expansion of 0.6 percent from the previous quarter, compared with a 0.5 percent growth in the initial reading and the median forecast.
The capital spending component of GDP rose 0.3 percent from the previous quarter, versus the median forecast for a 0.5 percent increase and the preliminary 0.3 percent fall.
Private consumption, which accounts for some 60 percent of GDP fell 0.1 percent in the first quarter from the previous three months, unchanged from the preliminary reading. The revised GDP confirmed imports fell faster than exports in the first quarter, underlining the broadening pressure across the economy as consumers grow more cautious.
That may explain why a separate Cabinet Office survey showed a worsening in sentiment in a key group of employees. The called “economy watchers” sentiment index, which measures business confidence among workers such as taxi drivers, hotel workers and restaurant staff worsened to about a three-year low in May.
Group of 20 finance leaders on Sunday said that trade and geopolitical tensions have “intensified,” raising risks to improving global growth, but they stopped short of calling for a resolution of the deepening US-China trade conflict.
The Bank of Japan is among major central banks that could come under pressure to ramp up its already massive stimulus program, as the trade dispute raises fears of a global recession. BOJ Governor Haruhiko Kuroda has said rates could be kept ultra-low for at least one more year to support the economy.
Net exports — or exports minus imports — added 0.4 percentage point to growth, while domestic demand contributed 0.1 percentage point to GDP — both were unchanged from the initial reading.
Japanese exports contracted for the fifth month in April due to a slump in shipments of chip-making equipment to China, while a private survey last week showed the nation’s manufacturing activity swung back into contraction in May as export orders fell at the fastest pace in four months.
The data underlined the growing threat to the economy from the bruising Sino-US trade war, and has stoked speculation that Prime Minister Shinzo Abe may delay a sales tax hike for a third time to avoid a further blow to consumer spending.
However, the government has indicated it will go ahead with the sales tax hike to 10 percent from 8 percent in October, barring a big economic shock on the scale of the collapse of Lehman Brothers in 2008.
Mutou at Tokai Tokyo Research expects the government to raise the tax, saying its plans for a host of stimulus steps would help ease its effects on households.


Oil prices surge after attacks hit Saudi output

Updated 16 September 2019

Oil prices surge after attacks hit Saudi output

  • The Houthi attacks hit two Aramco sites and effectively shut down six percent of the global oil supply
  • President Donald Trump said Sunday the US was ‘locked and loaded’ to respond to the attacks

HONG KONG: Oil prices saw a record surge Monday after attacks on two Saudi facilities slashed output in the world’s top producer by half, fueling fresh geopolitical fears as Donald Trump blamed Iran and raised the possibility of a military strike on the country.
Brent futures surged $12 in the first few minutes of business — the most in dollar terms since they were launched in 1988 and representing a jump of nearly 20 percent — while WTI jumped more than $8, or 15 percent.
Both contracts pared the gains but were both still more than 10 percent up.
The attack by Tehran-backed Houthi militia in neighboring Yemen, where a Saudi-led coalition is bogged down in a five-year war, hit two sites owned by state-run giant Aramco and effectively shut down six percent of the global oil supply.
Trump said Sunday the US was “locked and loaded” to respond to the attack, while Secretary of State Mike Pompeo said: “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Tehran denies the accusations but the news revived fears of a conflict in the tinderbox Middle East after a series of attacks on oil tankers earlier this year that were also blamed on Iran.
“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” said Jeffrey Halley, senior market analyst at OANDA.
Trump authorized the release of US supplies from its Strategic Petroleum Reserve, while Aramco said more than half of the five million barrels of production lost will be restored by tomorrow.
But the strikes raise concerns about the security of supplies from the world’s biggest producer.
Oil prices had dropped last week after news that Trump had fired his anti-Iran hawkish national security adviser John Bolton, which was seen as paving the way for an easing of tensions in the region.
“One thing we can say with confidence is that if part of the reason for last week’s fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton’s sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid,” said Ray Attrill at National Australia Bank.