Japan’s economy contracted for first time in two years in Q1 2018

The Japanese economy contracted for the first time in two years in the first quarter of 2018.

Japan’s economy contracted at an annualized rate of 0.6%, marking the end of eight consecutive quarters of economic expansion. Economists has forecast annualized contraction of around 0.2%.

On a quarter-on-quarter basis the economy shrank by 0.2%.

The economy was dragged down by sluggish private consumption and capital expenditure.

Export demand added 0.1% to first quarter GDP but the rate of growth is slowing. In the first quarter exports expanded by 0.6% after 2.2% growth in the previous quarter.

Economists don’t expect the period of contraction to last long. However, there are concerns that trade friction with the US could affect demand for exports.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, was quoted by Reuters as saying:

“Globally, IT-related items have been in an adjustment phase, which weighed down Japan’s exports and factory output.”

“The economy is unlikely to continue to contract further. The global economy is performing well and a yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path.”

Japanese government officials expect the decline to be temporary.

Economy Minister Toshimitsu Motegi said: “There is no change in our view that the economy is recovering moderately,”​

Economist expects annual expansion to slow to 1.2% this year

According to the WSJ, Capital Economics senior Japan economist Marcel Thieliant forecasts annual expansion to slow from 1.7% in 2017 to 1.2% this year.