Japan’s GDP growth shows domestic resilience in face of global slowdown

Pedestrians walk past a shoe store in Tokyo on Friday. Japan’s economy grew at a faster than expected clip in the second quarter. (AFP)
Updated 09 August 2019

Japan’s GDP growth shows domestic resilience in face of global slowdown

  • Latest figures ease pressure on Bank of Japan to follow other central banks and ramp up stimulus

BEIJING: Japan’s economy grew much faster than expected in April-June to mark the third straight quarter of expansion, as robust private consumption and business investment offset the hit to exports from cooling global demand.

The data offers some relief for the Bank of Japan, which is under pressure to follow other central banks and ramp up stimulus to head off heightening global risks.

Gross domestic product (GDP) grew at an annualized 1.8 percent in the second quarter, the Cabinet Office’s preliminary data showed on Friday, far exceeding a median market forecast for a 0.4 percent increase. It followed a revised 2.8 percent gain in January-March.

“There are no signs that the uncertainty from the trade war has prompted firms to rein in investment spending,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“Today’s data will assuage some of the concerns among Bank of Japan Board members about the impact of the global slowdown on Japan’s economy.”

Private consumption, which accounts for about 60 percent of the economy, rose 0.6 percent from the previous quarter to mark the third straight quarter of increase, thanks to brisk demand for cars and air conditioners, a government official told reporters.

Capital expenditure increased 1.5 percent, accelerating from a 0.4 percent rise in January-March and beating a median market forecast for a 0.7 percent gain, as companies invested in streamlining operations in the face of labor shortages.

Office building construction and public works projects drove the strength in capital expenditure, analysts said, a sign the economy’s resilience was underpinned by those sectors less affected by slowing global trade.

Even exports, which were expected to be weak due to the broadening fallout from the US-China trade war, fell just 0.1 percent after a much bigger 2 percent drop in January-March.

Domestic demand added 0.7 percentage point to GDP growth, more than offsetting the 0.3 point negative contribution from external demand, the data showed.

On a quarter-on-quarter basis, GDP expanded 0.4 percent, compared with a median estimate of a 0.1 percent gain, the data showed.

The upbeat data underscores the BOJ’s view the world’s third-largest economy will continue to expand moderately, as solid household and corporate spending ease the pain from soft global demand.

But some analysts warn that Japan may lose support from domestic demand after a scheduled sales tax hike in October hits households, many of whom are sensitive to rising prices due to slow wage growth.

“Private consumption was supported by pent-up demand of durable goods ahead of the tax hike,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“It’s likely that domestic demand will weaken quite substantially from the October-December quarter onwards because of the sales tax hike.”


Virus may slash $29 billion from airlines’ revenue

Updated 12 min 21 sec ago

Virus may slash $29 billion from airlines’ revenue

TOKYO: The outbreak of the coronavirus  threatens to erase $29 billion of revenue for global airlines, mostly for Chinese carriers, as travel crashes worldwide, according to the International Air Transport Association (IATA).

The trade group for global airlines said Thursday that the virus causing COVID-19 had the potential to cause a 13 percent decline in demand for Asian carriers this year.

The contraction comes following following a period of sales growth for Asian airlines.

Global air traffic will be reduced by 4.7 percent for the year, marking the first overall decline in demand since the financial crisis of 2008, the IATA said. How profits will be affected was still unclear.

The estimates foresee a scenario where COVID-19 has a “V-shaped impact,” similar to what happened during the SARS virus outbreak in 2003, with a sharp dive followed by a quick recovery, according to IATA.

International airlines including the UK’s British Airways, Germany’s Lufthansa, Australia’s Qantas and the three largest US airlines have suspended flights to China, in some cases until as late as April or May.

Cathay Pacific asked employees to take three weeks of unpaid leave to help it weather the crisis.

Travel restrictions inside China and fear of the illness have devastated demand for domestic flights in the fast-growing China market.

Many nations are warning people not to travel to China, or barring travelers from China, especially from the Wuhan area, at the center of the outbreak.

People around the world are also voluntarily scaling back travel, while some governments and health experts are encouraging people to stay indoors not only in China but also South Korea and Japan to avoid getting infected.

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority,” said Alexandre de Juniac, IATA’s Director General and CEO. “This will be a very tough year for airlines.”

Analysts at Cowen, a US investment bank and financial services company, noted IATA might be underestimating the impact on Asia travel outside of China, noting the recent reports of dozens of cases in South Korea.

“While still relatively small, and too early to tell if it will spread further, we see this as a material negative data point on the global containment of the virus,” the report said.