For the first time in two years, Japan's economy shrinks

For the first time in two years, Japan's economy shrinks

Officials at the Cabinet Office attribute this to sluggish personal spending.

Private residential investment also plunged another 2.1 per cent after a 2.7 per cent fall in the previous quarter.

On a seasonally adjusted annualized basis, GDP was down 0.6% - again missing forecasts for a decline of 0.1% following the downwardly revised 0.6% gain in the previous three months.

"There were one-off special factors in the January-March period, ranging from stock market sell-offs to higher vegetable prices due to bad weather", said Takeshi Minami, chief economist at Norinchukin.

"Comparing the different components of demand with our earlier forecasts, the q-q decline (-0.1%) in real private-sector capex and the q-q rise (+0.0%) in real public fixed capital formation both come as something of a surprise".

Economists say the contraction will be temporary, but there is a risk that trade friction with the United States will hurt export demand, meaning a strong recovery is not assured.


Japan depends on global growth to fuel its own economy for which exports are crucial. Japan's exports to the US could suffer, and indirectly its economy will likely take a hit, if China's exports to the USA fall. The median estimate was for a 0.4 percent increase.

Japanese government data on preliminary GDP figures for the January-to-March period shows that the country's economy shrank for the first time in 9 quarters.

Consumer spending fell marginally, registering a decline of less than one percentage point in the first quarter.

But consumer spending has remained stubbornly lacklustre, with companies staying stingy on wage hikes despite healthy profits.

Exports rose 0.6 percent.

However, a breakdown of the data shows export growth is losing momentum, expanding 0.6 percent in the first quarter after growth of 2.2 percent expansion in the fourth quarter.

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