Japan’s economy grew in the second quarter, but trade risks loom

Japan’s economy grew more than expected in the second quarter, helped by improved household spending and rebounding from a contraction in the previous quarter, but global trade tensions loom as major risks to the export and investment outlook.

The economy grew 1.9 percent on an annualized basis in April-June, more than the median estimate for a 1.4 percent annualized increase. That follows a revised 0.9 percent annualized contraction in the previous quarter, which put an end to the best run of growth since the 1980s bubble economy.

The economy is expected to continue growing due to consumer spending and business investment, but there is growing unease about the pace of future growth, economists say, with the rift between Japan and the United States presenting potential headwinds for growth.

Following a meeting with U.S. Trade Representative Robert Lighthizer on Thursday, Japanese Economy Minister Toshimitsu Motegi appeared to maintain Tokyo’s position that it preferred multilateral free-trade agreements over bilateral ones, which has been a point of contention with Washington.

Compared with the previous quarter, gross domestic product rose 0.5 percent, more than the median estimate for a 0.3 percent increase and after a 0.2 percent contraction in January-March.

Private consumption, which accounts for about 60 percent of GDP, was the biggest contributor to growth in April-June, rising 0.7 percent. That was more that the median estimate for a 0.2 percent increase and marked a rebound from a revised 0.2 percent fall in the first quarter.

Capital spending, the second-biggest contributor to growth, rose 1.3 percent, the biggest increase since October-December 2016. That was above the median estimate for a 0.6 percent increase.

However, external demand — or exports minus imports — subtracted 0.1 percentage point from growth, missing expectations for a 0.1 percentage point contribution.

The United States has pressured Japan for a bi-lateral free-trade agreement as a way to lower the U.S. trade deficit.

Japan has repeatedly said it prefers multilateral trade negotiations, which puts it at loggerheads with the United States.

U.S. President Donald Trump is trying to re-negotiate the U.S. trade relationship with other countries to curb practices which he says are unfair to U.S. companies and workers.

This has led to an increase in tensions between the United States and China as the world’s two largest economies slap retaliatory tariffs on each other.

Comments are closed.