Japan’s economy has shrunk due to the effects of the country’s latest sales tax hike as well as the ongoing global coronavirus outbreak.Reuters
Japan’s economy shrank at the fastest pace in almost six years in the December quarter as a sales tax hike hit consumer and business spending, raising the risk of a recession as China’s coronavirus outbreak chills global activity.
Analysts say the widening fallout from the epidemic, which is damaging output and tourism, could have a significant impact on Japan if it’s not contained in coming months.
“There’s a pretty good chance the economy will suffer another contraction in January-March. The virus will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot,” said Taro Saito, executive research fellow at NLI Research Institute.
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“If this epidemic is not contained by the time of the Tokyo Olympic Games, the damage to the economy will be huge,” he said.
Japan’s gross domestic product (GDP) shrank an annualized 6.3 per cent in the October-December period, government data showed on Monday, much faster than a median market forecast for a 3.7 per cent drop and the first decline in five quarters.
It was the biggest fall since the second quarter of 2014, when consumption took a hit from a sales tax hike in April of that year.
The weak data also comes amid signs of struggle in the wider region with the coronavirus, leaving Japan vulnerable to a recession – defined as two consecutive quarters of contraction.
Singapore cut its economic growth projections for 2020, Thailand posted its slowest expansion in five years and China’s home prices rose at their weakest pace in almost two years.
Japanese stocks slipped on the recession prospects with the benchmark Nikkei average 0.7 per cent down and the broader Topix 0.9 per cent off by the close.
The sales tax hike in October last year – as well as unusually warm weather that hurt sales of winter items – weighed on private consumption, which sank a bigger-than-expected 2.9 per cent, marking the first drop in five quarters.
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Capital expenditure fell 3.7 per cent in the fourth quarter, much faster than a median forecast for a 1.6 per cent drop and the first decline in three quarters, the data showed.
Combined, domestic demand knocked 2.1 percentage points off GDP growth, more than offsetting a 0.5 point contribution from external demand.
‘BIGGEST UNCERTAINTY’
Japanese policymakers had warned that the economy will suffer a contraction in October-December as the sales tax hike, typhoons and the Sino-U.S. trade war hurt consumption and factory output.
Still, the weakness in capital expenditure – considered among the few bright spots in the economy – casts doubt on the Bank of Japan’s view that growth will continue to expand moderately as robust domestic demand makes up for faltering exports.
Last month, the BOJ kept monetary policy steady.
BOJ Governor Haruhiko Kuroda said the central bank would consider additional easing if the coronavirus outbreak significantly threatened Japan’s economy and price trends, the Sankei newspaper reported on Monday.
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In his interview with the daily, Kuroda said the outbreak was the “biggest uncertainty” for the domestic economy.
Worries about the spread of the coronavirus and its hit to the global economy kept Japanese manufacturers’ mood gloomy in February, a Reuters poll found.
The outbreak has forced factories in China to shut down and led to a sharp drop in Chinese tourists.
Still, many analysts doubt whether the government and the central bank have effective means to fight another recession given their dwindling policy ammunition.
“The government has already taken steps to respond to the sales tax hike and post-Olympics slowdown, so you cannot expect further steps on the fiscal front,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“There’s not a lot more the BOJ can do either … Additional easing may do more harm than good to the economy.”
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
