Japan Economy Will Contract More Than Expected As Result Of Supply

Japanese GDP shrank at a faster pace than expected in the third quarter due to global supply delays that impacted both exports and corporate spending. At the same time, additional Covid-19 cases dampened consumer sentiment.

Japan Economy Will Contract More Than Expected As Result Of Supply

This quarter, many experts are predicting a recovery in Japan’s economy, but mounting global production restrictions are putting the country’s dependence on foreign commerce in jeopardy. According to Norinchukin Research Institute’s senior economist, Takeshi Minami, supply-chain constraints reduced car manufacturing and capital expenditure much more than expected.

According to economists, a slow rebound is expected even after Covid-19 restrictions were released in the latter week of September. As a result, consumption didn’t get off to a great start when the restrictions were abolished.

The economy shrank by an annualized 3% in the three months from July to September after increasing by a corrected 1.5% in the previous quarter. Market analysts had predicted an annualized fall of about 0.8%, but the actual number was far worse.

Other industrialized countries, including the United States, have had more positive GDP growth in the third quarter, powered by strong pent-up demand and low inflation. This contrasts with the sluggish GDP growth in China. Statistics published Monday show that despite supply constraints and the introduction of Covid-19 limitations, industrial output and retail sales grew in China in October.

Gross domestic product (GDP) fell by 0.8% in the third quarter of 2018, more than the 0.2% decline expected by markets. Some analysts believe that Japan’s economy is more vulnerable to trade disruptions than other countries because of the country’s heavy dependence on the automotive industry.

Mitsubishi UFJ Research and Consulting Chief Economist Shinichiro Kobayashi say that Japan’s automotive industry is a big part of Japan’s industrial sector. Many different subcontractors, according to him, are immediately affected. In a speech on Friday, Prime Minister Fumio Kishida announced plans for a big-scale stimulus program, saying it would cost “a significant number of tens of trillions of yen.” However, several analysts doubted the initiative would have much of an impact in the near term.

As part of the package, the government will design a strategy for storage batteries, which Trade Minister Koichi Hagiuda believes is vital to developing green and digital economic sectors. However, there were economists who questioned the stimulus’s efficacy. It is anticipated that the package will be a combination of short-term and long-term development measures, with the focus perhaps being jumbled, such that it will have minimal impact in the short term.

After increasing by 0.9% in the four months from April to June, consumption fell by 1.1% in the three months from July to September. In the third quarter, capital expenditures declined by 3.8 percent, after a 2.2 percent increase in the previous quarter. Domestic demand had a 0.9 percentage point impact on GDP growth.

As chip shortages and supply-chain constraints impacted business, exports declined by 2.1 percent in the three months from July to September. According to Reuters polled experts, the Japanese economy is expected to expand by an annualized 5.1 percent in the current quarter as a result of a rise in consumer spending and automobile manufacturing. Businesses in Japan are still concerned about rising commodity prices and supply restrictions, which might negatively impact the country’s economic outlook in the short to medium term.