Japan's economy just went sharply into reverse, and it could be an ominous warning sign for global growth

(Getty Images)
  • Finalised data showed Japan’s economy contracted by 2.5% in Q3 –- more than double the preliminary reading of 1.2%.
  • The Japanese yen was little-changed, after strengthening late last week amid renewed demand for safe haven assets.
  • A Reuters poll of Japanese business revealed a healthy dose of pessimism on the outlook for global growth.

Data this morning showed Japan’s economy shrunk in the September quarter at more than double the rate previously thought.

It follows a preliminary reading for Japan’s Q3 economic growth about a month ago, which wasn’t pretty.

The figures indicated Japan’s economy shrunk at an annualised rate of 1.2%, partially dragged down by natural disasters which slowed production.

But given the export-intensive nature of Japan’s economy, it also raised doubts around the outlook for global trade and economic activity.

Today, the finalised print showed Japan’s economy actually contracted by a hefty 2.5% in Q3 — well in excess of revised expectations for a 1.9% fall.

It had little effect on the Japanese yen, which has strengthened amid renewed demand for safe have assets as US-China trade tensions weigh on market sentiment.

The annual print translated into a quarterly decline of 0.6% in real terms, for the three months ended September. Private consumption fell by 0.2%, above the 0.1% forecast.

The result was driven by a collapse in capital expenditure, with projects delayed due to typhoon weather conditions and an earthquake in northern Japan.

Capex slumped by 2.8%, the largest decline since the global financial crisis. Despite that, due to the one-off effect of weather conditions most economists expect to see a rebound in Q4 growth.

Japan’s contraction sees it joins a number of other countries which had negative growth in Q3, including Italy and Germany.

Looking ahead, a Reuters poll of Japanese businesses showed just 14% of respondents think Japan’s economy will grow next year, with the majority predicting growth to flat-line or fall.

Their view was partially influenced by a decision from the Japanese government to raise sales taxes to 10%, from 8%.

But importantly, the outlook for the global economy wasn’t much better.

Over half of respondents said the global economy was unlikely to match the 3.7% annual rate of growth currency forecast by the IMF, while just 10% thought it would exceed that level.

In line with a broader selloff across Asian markets, stocks in Japan are down more than 2% after markets opened at 11am AEDT.

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