Japan's Two-Year Growth Streak Set for Speed Bump in GDP Report

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(Bloomberg) -- Japan’s economy is forecast to have shrunk modestly in the first quarter. While that would snap the longest run of growth in nearly three decades, economists point to a rebound in the current quarter as the global economy powers through a slow patch.

Gross domestic product contracted 0.1 percent on an annualized basis during the first three months of the year from the previous quarter, according to the median of 26 estimates in Bloomberg’s survey. Weak spending by households and slower export growth are to blame.

Early signs of a slowdown came with a slump in January industrial production, followed by slow export growth in February and March. The biggest rise in wages in decades in March failed to spur household spending, which declined in that month and the previous month.

“It’s going to be a weak GDP report, but I expect that to be only temporary,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co and a former Bank of Japan official. “A key drag was weak consumer spending because of bad weather, which should pick up in the second quarter. And the global recovery is continuing.”

“The global economic recovery slowed a bit, but it’s a soft patch and I don’t think it’s going to lead to a further slowdown,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. “Concerns over a trade war are receding, and dollar-yen has rebounded. So I don’t think the yen’s move will affect GDP.”

Kodama forecast a contraction of 0.1 percent last quarter, but expects exports to remain an important driver for the Japanese economy in coming quarters.

More on Japan’s economy
Wages rise the most in two decades 
Bank of Japan abandons time frame for hitting inflation target 
Industrial output expands in March 
Inflation slips in March

For the Bank of Japan, more important than the quarterly growth blip is the fact that modest inflation gains largely held up through it. While prices aren’t rising as fast as the central bank wants, inflation is still high enough to cut into people’s paychecks. Nominal wages rose 2.1 percent in March which was the fastest since 2003, but once you account for rising prices, there was only a 0.8 percent boost.

“The trend of individual consumption isn’t getting better,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc. “I’m not counting on it to pull the Japanese economy out of a soft patch.”

©2018 Bloomberg L.P.

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