Japan's GDP growth contracted 0.1% in Q3

Declines in private inventories significantly dragged on growth.

Japan’s economic growth has moderated to 0.1% QoQ in Q3 from 0.4% QoQ in the previous quarter as the growth pace of both private and public demand slowed, data from the nation’s Cabinet Office showed.

Private consumption spending grew at 0.4% QoQ. Business spending/capital expenditure (capex) rose by 0.9% QoQ. Housing investments inched up 1.4% QoQ in Q3 as well. The biggest drag on Japan’s GDP growth was the reversion of the private inventories as it deducted 0.3ppt to headline growth.

The other key growth driver was public demand and was largely driven by government consumption. It edged up 0.5% QoQ in Q3 and contributed 0.1ppt to headline growth. Public investment also rose by 0.8% QoQ.

Overall, private demand increased 0.1% whilst public demand went up 0.6% over the same period, each adding just 0.1ppt to domestic demand growth.

In addition, external demand continued to weigh down on Q3 GDP growth even as the imports rebound moderated to 0.2% QoQ. Exports of goods, however, recorded an increase of 0.3% QoQ in Q3 but was overshadowed by a sharp 4.4% QoQ decline in services.

UOB’s senior economist Alvin Liew said that Japan’s 2019 GDP growth may hit 0.7%.

“We expect trade headwinds and more importantly, a collapse of private spending in Q4 and extending into 2020, which will consequently drive Japan into a recession next year. Notwithstanding the Tokyo Olympics next year, we believe that Japan’s GDP will contract by 0.8% in 2020,” Liew said.