(Bloomberg) — Japan’s economy slipped back into reverse over the summer, underscoring the fragility of the country’s recovery and backing the case for continued support from the Bank of Japan and the government.
Gross domestic product shrank at an annualized pace of 2.1% in the third quarter, largely on the back of falling business spending, a lack of recovery in consumer spending, and higher imports, the Cabinet Office reported Wednesday.
The contraction was much deeper than economists’ estimate of a 0.4% shrinkage. The yen weakened against the dollar following the release.
Wednesday’s data suggest that Japan’s economic recovery is more fragile than previously thought, and in need of continued government and central bank support. The results may give the BOJ a reason to delay any policy shift toward normalization, in the face of continued uncertainties including currency weakness, prolonged inflation and a cloudy outlook overseas.
“This is a weak result,” said Tsukasa Koizumi, an economist at Hamagin Research Institute. “Particularly consumer spending — I thought the summer service sector spending was fairly solid so the fact that that’s fallen is significant. The inflation we’re seeing is strengthening households’ desire to cut back on spending.”
BOJ Governor Kazuo Ueda has maintained that the bank will stand pat until there are clearer signs that a virtuous cycle of wages, prices and growth is strengthening. Still, Ueda also recently hinted that Japan is making progress toward its 2% stable inflation target, a prerequisite for policy normalization, fueling speculation over a possible early shift.
That speculation continues to grow, said Taro Saito, head of economic research at NLI Research Institute. But looking at the state of the economy, that early normalization scenario could be in jeopardy, he added.
The third quarter contraction was partly driven by businesses’ capital spending decreasing 0.6% after a 1% drop in the previous quarter, indicating that companies continued to cut back on investments amid price hikes, despite the increasing need for digitalization to tackle labor shortages.
What Bloomberg Economics Says…
“Looking ahead, gloomy outlooks for China, the US and other major trading partners will hit exports and continue to deter business spending. The likelihood of a second consecutive quarterly GDP contraction in 4Q should be enough to keep the BOJ wedded to its yield-curve control and negative interest rates for a while yet.”
— Taro Kimura, economist
For the full report, click here.
Private consumption also failed to grow, defying analyst forecasts of a 0.3% increase. Real spending levels were the weakest since the last quarter of 2011, underscoring the fact that longer-term growth is difficult to achieve with a shrinking and aging population. The number of people in Japan has decreased more than 2% since 2011.
Net exports also dragged on the overall figures, as imports, which rebounded from a sharp drop in the spring, with net exports subtracting 0.1 percentage points from the overall GDP figure.
Ongoing inflation partly fueled by a weak yen, coupled with sluggish pay growth may also risk a further cooling of consumer confidence going ahead. The Japanese currency hit 151.91 against the dollar on Monday, its lowest level since October last year when the government intervened in the market to support the yen.
Weakness in the currency is already forecast by the International Monetary Fund to nudge Japan’s economy down to the world’s fourth-largest behind the US, China and Germany in dollar terms by the end of the year.
To address continued sluggish demand and the impact of high prices on households, the government recently added spending to support demand through Prime Minister Fumio Kishida’s latest economic package worth over ¥17 trillion ($113 billion).
The measures center on income tax cuts and handouts to low-income households to help them deal with higher prices. The Cabinet Office estimates the measures could boost the economy by 1.2% annually over the next three years.
“The government has this picture of defeating deflation by passing the stimulus package as a defensive measure, and confirming wage growth next year,” said Toru Suehiro, chief economist at Daiwa Securities. “The BOJ is looking at a similar scenario and they are seen scrapping negative rates in April, but today’s results suggest that that route may not necessarily materialize.”
–With assistance from Toru Fujioka, Yoshiaki Nohara and Emi Urabe.
(Updates with more details from release, economist comments)
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
