The Japanese economy grew at an annualised pace of just 0.2 per cent in the third quarter of 2019 as a solid underlying performance was dragged down by inventory adjustments.
Cuts to inventories subtracted a full 1.2 percentage points from the result. Without that drag, the report would have comfortably beaten consensus expectations for 0.8 per cent growth.
The cabinet office data suggest that Japan’s economy held up well in the run-up to a rise in consumption tax at the start of October. Most analysts expect the economy to struggle in the fourth quarter as the higher taxes weigh on consumer spending.
“The slowdown in GDP growth in the third quarter isn’t too worrying as it reduces the likelihood of a slump in output after October’s sales tax hike,” said Marcel Thieliant, senior Japan economist at Capital Economics in Singapore.
Consumption contributed an annualised 0.8 percentage points to growth, business investment contributed 0.6 percentage points and government spending added another 0.4 percentage points.
Final sales of domestic product, usually regarded as the best guide to underlying demand in the economy, rose at an annualised pace of 1.5 per cent. That is well ahead of Japan’s long-run, trend growth rate of about 0.7 per cent.
The positive contributions to growth were offset by the 1.2 percentage point subtraction from inventories and a 0.6 percentage point fall from net exports. Japan’s economy has been struggling all year with the slowdown in China that has hurt its industrial mainstays of vehicles, chemicals, electronics and machinery.
Third-quarter growth in spending was relatively modest compared with the last time the consumption tax went up in 2014. That suggests consumers did not bring forward as much demand to beat the tax rise, implying there will be less of a hangover in the fourth quarter.
But Mr Thieliant said that the decline in inventories “suggests that demand ahead of the tax hike was still a bit stronger than firms had anticipated” and pencilled in a 0.7 per cent quarter-on-quarter decline in output for the fourth quarter.
Both the Bank of Japan and the government of prime minister Shinzo Abe are worried about the slowing economy given the backdrop of trade tensions between the US and China and global economic fragility.
The post Inventories drag down Japanese growth to just 0.2% appeared first on Financial Times.