Business / Economy

Japan to see first drop in GDP in five quarters, estimates show

JIJI

Japan’s real gross domestic product is believed to have dropped for the first time in five quarters in the October-December period, partly due to the consumption tax hike taking a bite out of domestic demand, according to estimates by 10 think tanks.

The research institutes on average expect that seasonally adjusted GDP shrank a real 3.6 percent from the previous quarter on an annualized basis. Their estimates range from a drop of 4.4 percent to a fall of 2.3 percent.

The Cabinet Office is scheduled to announce preliminary GDP data for the third quarter of fiscal 2019 on Feb. 17.

In July-September, GDP grew on the back of a last-minute rise in domestic demand ahead of the consumption tax hike to 10 percent from 8 percent in October and robust capital spending by domestic firms.

Those factors more than offset a fall in external demand due to prolonged trade friction between the United States and China.

But all 10 institutes believe private consumption declined in the latest quarter, citing a pullback in demand after the tax hike, damage from powerful Typhoon Hagibis in October and sluggish sales of seasonal products due to relatively warm winter weather.

In addition, the think tanks project that capital spending, mainly by manufacturers, fell back.

For the January-March quarter, consumption is widely expected to pick up as the decline in demand after the tax hike is seen subsiding.

Still, Shinichiro Kobayashi, chief researcher at Mitsubishi UFJ Research and Consulting Co., said that “the warm winter and a further spread of the new coronavirus originating in China would increase downside risks to the economy.”