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Hong Kong/Tokyo
CNN
—
Japan’s economy unexpectedly contracted due to slumping domestic consumption, sending Japan into recession and losing its position as the world’s third largest economy to Germany.
Gross domestic product (GDP) shrank at an annual rate of 0.4% in the last three months of 2023, after contracting at an annual rate of 3.3%, the Cabinet Office said on Thursday. in the previous quarter. A recession is usually defined as two consecutive quarters of economic contraction.
The extent of the decline was much lower than market expectations. Economists polled by Reuters had expected GDP to grow at an annualized rate of 1.4% in the October-December period.
This data confirms that Japan’s economy was the fourth largest in the world in US dollar terms last year, behind Germany.
Domestic demand in particular was sluggish. All major domestic demand sectors, including personal consumption, were negative. Only external demand generated by exports of goods and services contributed positively.
Personal consumption, which accounts for half of the economy, fell at an annual rate of 0.9% in the fourth quarter as Japanese consumers grappled with soaring prices for food, fuel and other goods. This is the third consecutive quarterly decline.
Japan imports 94% of its basic energy needs and 63% of its food, so the weaker yen has contributed significantly to the rising cost of living, Neil Newman, a Tokyo-based strategist at Japan Macro, told CNN. Told.
The yen has fallen 6.6% against the US dollar so far this year, making it one of the worst performing currencies. Used by a group of 10 developed countries.
“In particular, personal consumption is sluggish, [and] “Market expectations were flat,” he said. “Unfortunately, the situation will get even worse in January after the Sea of Japan earthquake. People stop spending when natural disasters occur.”
On January 1, an earthquake centered on the Noto Peninsula in central Ishikawa Prefecture caused buildings to collapse, fires to break out, and a tsunami warning to be issued as far as eastern Russia. More than 200 people were killed and over 1,000 injured.
Capital spending also declined for the third consecutive quarter, down 0.3% in the fourth quarter. Private sector housing investment fell by 4%.
However, external demand supported overall growth. Exports increased at an annual rate of 11% compared to the previous quarter, partly due to the impact of the weaker yen. Especially inbound consumption, There was a significant increase in consumption, including consumption by tourists.
Despite being in a technical recession, the Japanese market continues to perform well, with the benchmark Nikkei Stock Average up 1.2%, trading above the 38,000 yen level for the first time since 1990. finished.
Some economists say the recession is likely to ease in the coming months.
“Despite the disappointing results, [fourth-quarter] As a result, we expect [first quarter] GDP will recover in 2024,” said Min Ju Kang, senior economist at ING Group.
Consumer spending fell in the second half of last year, but should improve this quarter on expectations for stabilizing inflation and wage growth. On the investment front, strong corporate profits and solid IT demand will lead to increased capital spending, he added.
Analysts at Capital Economics say business surveys and the labor market paint a brighter picture of the business environment than the headline numbers suggest.
The unemployment rate fell to 2.4% in December, the lowest level in 11 months. Additionally, the Bank of Japan’s Tankan survey showed business conditions across all industries and company sizes to be the strongest since the fourth quarter of 2018, they said.
He added that the government may revise the fourth-quarter figures upward in its regular review next month.
Goldman Sachs said Thursday that Japan’s economy is expected to grow by 1%. In the first quarter of 2024.
Analysts at the company said, “We expect inbound consumption to slow down from the rapid growth in October to December, but we still expect it to be on a moderate increasing trend.” Capital investment will also increase by 1.3% during the same period. He added that there is a possibility of a % recovery.
Analysts at Capital Economist expect the fourth-quarter GDP to be revised upward in March and say the GDP data is unlikely to prevent the Bank of Japan from lifting negative interest rates in April. showed that.
Investors in the country remain bullish. The Japanese stock market had an exceptional year in 2023, with the Nikkei stock average rising 28%, making it the best-performing market in Asia.
On the same day, Morgan Stanley reiterated its bullish view on Japanese stocks.[It is] our biggest [overweight] Recommended in our coverage area. ”
Analysts at Eastspring Investments said the rally in Japanese stocks was primarily driven by ongoing corporate reforms and improving stock returns, while a weaker yen also helped boost profits for Japanese exporters. It is said that there is
— CNN’s Juliana Liu and Junko Ogura contributed reporting
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