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Japan’s Economy Shrank Less Over Summer Than First Thought

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(Bloomberg) — Japan’s economy took a smaller hit than first thought during a summer marked by a renewed Covid surge and a plunge in the yen, with a return to growth expected this quarter.

Gross domestic product shrank an annualized 0.8% in the three months to the end of September from the previous period, revised figures from the Cabinet Office showed Thursday. That was smaller than the 1.2% contraction first estimated and a 1% drop forecast by economists.

The revised figures showed that stronger exports reduced the heavy negative impact on trade from the yen drop, and that capital spending by firms held up.

A buildup of inventories also helped narrow the contraction of the economy, though that also suggests there wasn’t enough demand for the output of factories. The data also showed consumption was weaker than first thought during the summer Covid surge and inflation acceleration.

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Overall, the figures didn’t improve enough to eliminate concerns among policymakers over the resilience of the economy. Japan heads toward the end of the year and into 2023 with clouds darkening over the global outlook, and the possibility of recessions in key overseas markets.

“The weaker consumption worries me,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “Spending hasn’t picked up much in the current quarter, either, probably because of inflation and another rise in Covid infections.”

What Bloomberg Economics Says…

“Details under the hood of Japan’s narrower third-quarter GDP contraction aren’t encouraging. A buildup in inventory that contributed to the upward revision will limit catch-up production in 4Q.”

— Yuki Masujima, economist

For the full report, click here

Prime Minister Fumio Kishida has already put together an economic stimulus package to cushion the impact of strengthening inflation that should offer more support for growth early next year. Analysts also expect the economy to have returned to expansion this quarter.

The Bank of Japan, meanwhile, is expected to keep interest rates unchanged at ultra-low levels during the last months of Governor Haruhiko Kuroda’s tenure.

Still, analysts are concerned about how the economy will weather a global slowdown prompted by tighter central bank police elsewhere in the world. Cautious moves by China to relax its virus restrictions offer one of the few points of optimism over the coming months.

“External demand is also be on the wane, as we saw in industrial production,” Taguchi said. “The situation may change if China lifts its zero Covid policy, but for now Europe and the US are bracing for the impact of an economic slowdown in the wake of interest rate hikes.”

Economists expect private sector spending and services consumption to support the economy this quarter. Pent-up demand held over from the summer Covid wave has already fueled consumer outlays, though the recent resurgence of infections will likely start to limit those gains. The government is widely expected to keep the country free of virus-related restrictions to maintain economic activities.

Inflation is growing as another concern for consumption and the recovery path. Japan’s price increases hit their fastest clip in 40 years in October, and the pace likely sped up further in November based on last month’s Tokyo data, a leading indicator for nationwide trends.

Kishida’s support package offers further relief from soaring energy costs with electricity bills set to get hefty subsidies from early next year.

Business spending didn’t get revised up as expected but still showed resilience in corporate sentiment despite a yen slide that prompted government intervention in currency markets. The plunge in the yen over the summer may give companies second thoughts about their business plans.

Still, the yen’s recent pullback may reassure businesses going ahead and should also have a favorable impact on net trade this quarter.

“Personally, I don’t think the capital investment will decrease that much,” said Toru Suehiro, chief economist at Daiwa Securities. “I think that capital investment will continue throughout next year due to pent-up demands.”

Another positive development is that Japan fully reopened its borders to tourists in October. That offers the prospect of renewed inbound spending by visitors attracted by cheaper travel expenses thanks to their relatively stronger currencies.

(Adds economist comment, more details)

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South Korea’s Export Decline Persists as Global Economy Weakens

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(Bloomberg) — South Korea posted a record trade deficit in January as exports weakened further, raising concerns the economy may fall into recession amid deteriorating semiconductor demand and persistently elevated energy prices.

The shortfall swelled to $12.7 billion, almost triple the month-earlier figure, as exports slumped 16.6%, data released by the trade ministry showed Wednesday. Shipments of semiconductors plunged 44.5%, while total imports fell 2.6%.

Sluggish exports were at the core of the Korean economy’s contraction in the final three months of last year and may persist for months to come as global consumption slows. Confidence among Korean firms that sell abroad is low and industrial production remains weak as manufacturers adopt a cautious outlook.

“The chance for another economic contraction has gotten greater,” said Park Sang-hyun, an economist for HI Investment & Securities in Seoul. “The deficit hurts not only companies’ bottom line but also consumer spending. It certainly weighs on the economy.”

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Citigroup Inc. forecasts a mild recession this winter in Korea.

Resilient exports were a key factor in the Bank of Korea’s confidence that the economy could withstand policy tightening over the past 18 months. The trade numbers bolster the case for an interest-rate pause when the board meets later this month.

With the key rate now at 3.5% — the highest since 2008 — Governor Rhee Chang-yong increasingly sees economic concerns coming to the fore, while the bank wants to keeps policy tight to prevent inflationary pressure from rebuilding.

Korean exports are a major barometer of global trade as the nation produces key items such as chips, displays and refined oil that straddle supply chains. It is also home to some of the world’s largest semiconductor and smartphone makers, and a major downturn is hurting those industries.

SK Hynix Inc., Korea’s second-biggest chipmaker, reported its biggest quarterly loss on record on Wednesday, a day after Samsung Electronics Co. said its operating income dropped by 97% from a year earlier.

The world economy is slowing as a result of rising rates to tackle inflation, as well as Russia’s ongoing war in Ukraine that has fueled oil and food prices. China is also yet to fully recover from its Covid restrictions.

China’s downturn and the drop in semiconductor prices were among major factors hurting Korean trade’s bottom line, along with an increase in energy imports, Finance Minister Choo Kyung-ho said in a statement.

Global demand is likely to remain subdued this year while household debt, fiscal tightening and high borrowing costs constrain Korea’s domestic recovery, Fitch Solutions said in a note.

A turnaround for Korean exports may come from China if the world’s second-largest economy succeeds in reviving its growth engine after an extended period of Covid restrictions. China is the largest buyer of Korean goods that mostly get reassembled to be shipped elsewhere.

Korea’s trade balance is likely to improve in coming months as China reopens, Finance Minister Choo said. Economic activity in China expanded in January as the peak of the Covid exit waves likely passed, Pantheon Macroeconomics said.

Trade is a vital component of Korea’s economy and has far-reaching implications for jobs and consumers. The country’s jobless rate climbed to 3.3% last month from 2.9% in November while gains in employment softened.

–With assistance from Myungshin Cho.

(Adds comments from economist and minister, as well as chipmaker earnings.)

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Canada’s economy slowed down in November, but still eked out growth

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The Canadian economy grew by 0.1 per cent in November as higher interest rates began to slow spending toward the end of the year.

Canada’s gross domestic product expanded by 0.1 per cent in November, Statistics Canada reported Tuesday. (Ben Nelms/CBC)

The Canadian economy grew by 0.1 per cent in November as higher interest rates began to slow spending toward the end of the year.

Statistics Canada’s preliminary estimate for December indicates the economy stayed flat, suggesting the economy grew at an annualized rate of 1.6 per cent in the fourth quarter.

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The economy grew at an annualized rate of 2.9 per cent in the third quarter.

In November, growth in real domestic product was driven by the public sector, transportation and warehousing and finance and insurance.

Meanwhile, construction, retail and accommodation and food services contracted.

Statistics Canada says economic growth for 2022 was an estimated 3.8 per cent.

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Canadian economy grew 0.1% in November, likely was unchanged in December

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People shop for produce at the Granville Island Market, in Vancouver, on July 20, 2022.DARRYL DYCK/The Canadian Press

Canada’s economy expanded slightly in November, matching expectations, and likely stalled in December, data showed on Tuesday, broadly in line with the Bank of Canada’s expectations for the economy to flatline during the first half of this year.

November gross domestic product (GDP) rose 0.1 per cent in November, Statistics Canada said, and was likely flat in December, according to a preliminary estimate.

“The flash estimate for December suggested that there was little if any growth during the final month of the year. That aligns with our view that the economy is likely stalling,” said Royce Mendes, head of macro strategy at Desjardins.

In December, gains in the retail, utilities, and public sectors were offset by decreases in sectors including wholesale, finance and insurance, Statscan said.

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Annualized gross domestic product likely gained 1.6 per cent in the fourth quarter, above the Bank of Canada’s 1.3 per cent forecast. If the flash estimate proves correct, the economy expanded 3.8 per cent in 2022 from the previous year, above the central bank’s 3.6 per cent forecast.

“Today’s data show that the Canadian economy continues to cool, but not as yet shift into reverse, in the face of rising interest rates,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.

The Canadian central bank has raised its key interest rate at a record pace of 425 basis points in 10 months to cool the economy and bring inflation down. After the latest rate hike last week, the Bank of Canada said it would likely hold off on further increases.

Last week, the central bank said the economy would stall and could tip into a mild recession during the first half of this year.

“The overriding message is that the economy is just managing to keep its head above water, which squarely fits with the Bank of Canada’s view,” said Doug Porter, chief economist at BMO Capital Markets.

Canada’s service-producing sector grew 0.2 per cent in November, buoyed by a third straight month of gains in transportation and warehousing. The goods-producing sector contracted 0.1 per cent in November, dragged down by declines in the construction and manufacturing industries.

The Canadian dollar was trading 0.2 per cent lower at 1.3405 to the greenback, or 74.60 U.S. cents, after clawing back some of its earlier decline.

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