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Japan reduces GDP for the second quarter as trade war penetrates economy

Japan

Amidst the trade war between the United States and China, Japan’s GDP was lower in the second quarter of the year as compared to the estimated figure. The trade war penetrated the economy and affected business investment negatively.

Bank of Japan is being pressured to stimulate the economy, as it plans to meet next week, as the dampening global economy and excessive trade restrictions affect growth. 

Economics predicted a 1.8 percent annualised growth during the quarter ending June. However, Cabinet Office published on Monday that the GDP increased by only 1.3 percent during the period. Totan Research’s chief economist, Izuru Kato, claims that there is a high chance that the growth will fall into negative figures in the coming quarters.

He added that if the growth rate doesn’t improve, there would be pressure on the Bank of Japan to drop interest rates to negative. 

Business investment, as mentioned above, was affected by the weak global economy and the trade war. Expenditure on capital in the last quarter increased by a small 0.2 percent. This was significantly less than the predicted rise of 1.5 percent in capital spending.

The reduction in capital spending came as the revised GDP figures were lower than expected.

Oxford Economics’ senior economist, Stefan Angrick, said that the manufacturing sector reduced expenditure in the quarter due to the recent escalation in the trade war between the world’s two largest economies.

A survey reflected the exports of the Japanese economy reduced for the ninth consecutive month and manufacturing activity slowed for a fourth straight month. Net exports reduced by 0.3 percentage points signifying the effect of the trade war on the economy. 

Analysts claim that the domestic consumption, which forms 60 percent of the GDP of Japan, may fall as a rise in sales tax to 10 percent was placed last month.

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