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.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
