The economy of Japan is the third-largest economy in the world after China and the United States. It is larger than the economy of Germany or Great Britain, which is successively behind Japan according to data from 2018. Now, however, it seems that the third economy of the world is on the verge of recession, which may appear after the first quarter of this year.
Japan's GDP decreased by -1.6 percent in the last quarter of 2019. This was the most rapid decline in GDP since the second quarter of 2014. Data show that private consumption fell by 2.9 percent, which is the first fall in over a year after the increase in sales tax in October. In addition, corporate spending has fallen by 3.7 percent, i.e. the steepest decline since the third quarter of 2018. The next data that appeared this week and which may indicate a very poor condition of the Japanese economy were data on machinery orders. A 12.5 percent drop was recorded. This is the largest annual decline in orders since September 2018.
Today, on Friday, February 21, the PMI reading for services appeared. This is a preliminary reading for February, so it takes into account the outbreak of the coronavirus epidemic and its economic consequences. PMI fell to 46.7 from 51.0 points last month. This was the sharpest decline in the services sector since April 2014. According to preliminary data, the outbreak of coronavirus hit the tourism industry, which was the main source of demand for services. Services, in turn, account for about 70 percent of GDP, therefore, the collapse in this sector appears to have a potentially large impact on economic growth in the first quarter. In turn, with two quarters of GDP shrinking, we can start talking about a recession.
Investors this week seemed to be massively selling the Japanese currency, leading to its biggest depreciation for months. Meanwhile, the Japanese stock index Nikkei 225 (JP225 on the Conotoxia trading platform) is still relatively close to recent highs. Although, according to today's statements of the Governor of the Bank of Japan, BoJ does not intend to change monetary policy, which also supports the stock market, but the results of Japanese companies in the first quarter may be exposed to negative disappointment.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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