Japan’s real GDP growth for the first quarter of 2019 was revised up marginally to 0.6 percent quarter to quarter. Photo: Privacy.

JAKARTA (TheInsiderStories)Statistics Japan shows that the country’ economy advanced unexpectedly by 0.5 percent quarter-on-quarter in the three months to March of 2019, easily beating market expectations of a 0.1 percent contraction and after a downwardly revised 0.4 percent growth in the previous period, a preliminary estimate showed.

The solid expansion was mainly supported by net export gains, data showed on Monday (05/20), likely reflecting weak domestic demand, a point of concern for policymakers with a planned sales tax hike scheduled to take effect in October.

The largest contribution to the Gross Domestic Product (GDP) mainly came from net exports – added 0.4 percentage points, the data showed. At the same time, public demand was neutral while both private demand and changes in private inventories had a negative contribution of 0.1 percentage points, respectively.

Net exports technically drove growth in the economy, with imports declining faster than exports. Imports fell by 4.6 percent in the first quarter, reversing from a 3.0 percent growth in the preceding three-month period and marking the biggest yearly decrease since the March quarter 2009. The drop in imports was led by crude oil and natural gas, according to Cabinet Office officials.

Meantime, exports of goods and services contracted 2.4 percent, swinging from a 1.2 percent rise in the preceding period and reaching the steepest yearly fall since the second quarter of 2015.

Overall, private consumption figures suggest the Bank of Japan’s virtuous economic cycle remains incomplete. Private demand expanded 0.1 percent in the March quarter, compared to a 0.8 percent increase in the preceding quarter, despite declines in both private consumption (-0.1 percent vs 0.2 percent in Q4, matching consensus) and capital expenditure (-0.3 percent vs 2.5 percent in Q4, far less than expectations of a 1.7 percent drop).

Meanwhile, public demand rose by 0.2 percent, following a 0.3 percent gain in the December quarter, as public investment rebounded (1.5 percent vs -1.4 percent in Q4), while government spending contracted (-0.2 percent, the first yearly fall since a stagnation in the fourth quarter 2017, and following a 0.7 percent rise in Q4).

On an annualized basis, the economy grew unexpectedly by 2.1 percent in the first quarter, following a downwardly revised 1.6 percent expansion in the December quarter while markets had estimated a 0.2 percent contraction. The yearly growth was largely driven by net export gains.

The soft patches behind the headline GDP number could keep alive speculation that Prime Minister Shinzo Abe may postpone a twice-delayed increase in the sales tax in October. The government, previously, plans to raise the sales tax to 10 percent from 8 percent in October.

The GDP data comes as the government’s coincident economic indicator flagged the possibility Japan may be in a recession as exports and factory output was hit by China’s slowdown and his trade war against the United States. China was Japan’s biggest market–and rising trade tensions have hit corporate sentiment and business investment, which had supported Japan’s economy for most of the past two years.

GDP Growth Rate in Japan averaged 0.49 percent from 1980 until 2019, reaching an all-time high of 3.20 percent in the second quarter of 1990 and a record low of -4.80 percent in the first quarter of 2009.

IHS Markit maintains Japan’s real GDP growth forecast for 2019 at 0.6 percent. However, the near-term outlook remains vulnerable due to the escalation of the US-China trade tensions, which could suppress Japan’s exports to a greater extent over a prolonged period and, in turn, continue to weigh on capital expenditure and destocking.

New housing starts suggests the surge and drop before and after the consumption tax increase will probably softer than those of previous tax hikes and additional holidays related to imperial transitions (30 April, 1 May, and 22 October), Rugby World Cup matches, and front-loaded demand will probably underpin private consumption.

“However, event-driven spending could weigh on spending on necessities, particularly following the tax hike, which could require the government to increase stimulus plans,” said Harumi Taguchi, principal economist at IHS Markit.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com